Pakistan

World Bank sets four conditions for Pakistan for $350m loan

World Bank

The World Bank has now demanded Pakistan to complete four tasks during the current fiscal year 2021-22 to receive clearance for a $350 million programme loan.

The requirements entail integrating the GST system for the federal government and the provinces, as well as modifying the Fiscal Responsibility and Debt Limitation Act (FRDLA) in Parliament.

The uniformity of GST between the centre and provinces has continued to be a major outstanding issue before the high-profile National Tax Council (NTC), with all parties involved making last-ditch attempts to reach an agreement on the definition of goods and services, bringing uniformity to GST laws, tax rates, and scope of GST, but so far without progress.

The reduction of circular debt in accordance with the Circular Debt Management Plan (CDMP) and the recovery of power sector arrears are the two remaining conditions of prior actions for approval of a $350 million programme loan under the Resilient Institutions Strengthening Program (RISE-II).

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However, the PTI-led government has had difficulty moving forward with GST harmonization across the federation and federating units. It will be interesting to watch how far the administration gets with GST harmonization. According to the 1973 Constitutional provisions, the GST on products is the responsibility of the federal government, while the GST on services is the responsibility of the provinces.

Following the restart of the IMF programme, Islamabad would be able to acquire Letters of Comfort (LOC) from multilateral creditors, such as the World Bank and the Asian Development Bank to acquire programme loans.

Pakistan is discussing a new World Bank programme loan, the Pakistan Programme for Affordable and Clean Energy (PACE)–II, to address the heavy circular debt flow by lowering power generation costs, decarbonizing the energy mix, improving delivery performance, and retargeting electricity subsidies.

According to World Bank website, The World Bank has allocated $600 million to PACE-II so far, but official sources say the bank may pay around $300 million.

The loan amount has not yet been determined, but government sources stated that efforts would be made to obtain clearance from the World Bank for these two programme loans in the second part of current fiscal year, which will run until June 2022.

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