After IMF, World Bank sets Pakistan four conditions for $350m loan

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World Bank headquarters in Washington D,C. — Reuters/File
  • The World Bank’s conditions for Pakistan include the consolidation of the central provinces under a single GST regime.
  • Another condition is the collection of electricity sector arrears for loan approval.
  • An official said the NTC was also due to hold an important meeting today.

ISLAMABAD: Following the relaunch of a stalled International Monetary Fund (IMF) program, the World Bank has now requested Pakistan to meet four prior actions in the current fiscal year 2021-22 to gain approval a $350 million program loan, The news reported Wednesday.

The conditions include the consolidation of the center and the provinces under a General Sales Tax (GST) regime and the amendment of the Fiscal Responsibility and Debt Limitation Act (FRDLA) by Parliament.

Harmonization of the GST between the center and the provinces has remained a major pending issue before the National Tax Council (NTC) as all parties involved make last-ditch efforts to shift the consensus on the definition of goods and services , bringing GST-related uniformity. laws, tax rates and the scope of the GST, but have not yet achieved the expected results.

“We are still making progress on all these issues and the TNC is also due to hold another important meeting in Islamabad today,” senior official sources confirmed to The news.

Two remaining conditions of the prior actions are the cancellation of circular debt in accordance with the circular debt management plan (CDMP) and the collection of arrears from the electricity sector for the approval of a program loan of 350 million. dollars under the Resilient Institution Building (RISE-II) program.

However, the PTI-led regime has encountered difficulties in moving forward with GST harmonization between federations and federated units. It remains to be seen how the government is progressing in harmonizing the GST. The GST on goods falls centrally, while on services it falls under provincial jurisdiction under the constitutional provisions of 1973.

Following the relaunch of the IMF program, Islamabad can avail of a letter of comfort (LOC) to obtain program loans from multilateral creditors such as the World Bank and the Asian Development Bank (AfDB). A senior Finance Division official contacted said the government had made no request to increase the loan amount from $350 million to $500 million.

“We are committed to implementing the prior actions. The CNT meeting will also discuss prior actions,” he added.

In response to a question, Assistant Secretary for External Finance, Awais Manzur Sumra, said, “Loan amounts for the program are decided/determined at the time of loan negotiations.

“We haven’t reached that point in RISE-II. We remain committed to respecting the remaining prior actions,” Sumra added.

According to an official press release, Federal Finance and Revenue Minister Shaukat Tarin met on Tuesday with World Bank Country Director Najy Benhassine and his team in the Finance Division. The Secretary of Finance and senior officers were also present.

The meeting reviewed the progress of ongoing World Bank projects and programs in Pakistan, with a focus on RISE-II, and discussed some prerequisite steps for the timely completion of the program.

An official claimed that the government wanted to increase the amount up to $500 million under RISE-II, mainly because the Asian Infrastructure Investment Bank (AIIB) had pledged to provide $500 million in financing. counterpart of an equivalent amount in co-financing so that the total amount can increase. to $1 billion. But a senior finance division official said the government had made no such request to the World Bank.

Pakistan is negotiating another World Bank program loan called Pakistan Program for Affordable and Clean Energy (PACE)-II to reduce the circular debt flow monster by reducing power generation costs, decarbonizing the energy mix, improving distribution efficiency; and retargeting electricity subsidies.

The World Bank has so far committed $600 million for PACE-II, also posted on its website, but official sources said the bank could provide $300 million.

The amount of the loan has not yet been finalized, but official sources have confirmed that efforts will be made to obtain approval for these two World Bank program loans during the second half of this fiscal year until June. 2022.

With the approval of program loans in the second half of the year, overall loan and grant disbursements are expected to increase because in the first six months of this fiscal year, the government recovered over $9.4 billion, mostly through commercial loans and international bonds.

The government is only expecting $5.7 billion from multilateral creditors for the current fiscal year and after obtaining a comfort letter from the IMF, the program loans will be approved.

The improved loan disbursement is needed to avoid the depletion of foreign exchange reserves, which plunged to over $15.7 billion, held by the State Bank of Pakistan (SBP), on January 28, 2022.

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