World Bank withdraws from $500 million budget support for Pakistan

The World Bank canceled over $500 million in budget support for Pakistan, as the country failed to implement conditions, including the restructuring of the China-Pakistan Economic Corridor (CPEC) power purchase agreements.

The development will affect the government’s financial planning because it was estimated to receive $2 billion in the ongoing fiscal year. Furthermore, the World Bank will not provide any new budget support in FY2025.

A key reason for stopping loans is that Pakistan’s quota is about to end.

Sources privy to the matter stated that the Washington-based lender initially expressed consensus on providing a $500 million loan under the Affordable and Clean Energy program (PACE-II).

Subsequently, it agreed to provide a $600 million loan to bridge the external gap. However, in the latest development, the lender canceled the entire loan.

The World Bank approved PACE-II in June 2021, and the program’s first tranche of $400 million was released on time.

However, several conditions were attached to the second tranche, such as negotiations with Independent Power Producers (IPPs) and Chinese power plants to restructure the China-Pakistan Economic Corridor (CPEC) power purchase agreements.

According to reports, no breakthrough could be achieved in negotiations with China over power plants. China refused to reopen these deals despite multiple requests and also declined to restructure the $16 billion debt.

A World Bank spokesperson confirmed that PACE I was approved in 2021, with PACE II intended for fiscal year 2022. However, slower-than-expected progress prompted the World Bank to adjust its lending strategy.

Moreover, the spokesperson stated, "No budget support is in the pipeline for the current fiscal year."

As a condition for PACE II, Pakistan was also required to address inefficiencies in power distribution companies and reduce circular debt.