World Bank Halts Budget Support, Cancels $600 Million Loan: Major Blow to Pakistan's Budget

World Bank Halts Budget Support, Cancels $600 Million Loan: Major Blow to Pakistan's Budget

The World Bank has delivered a significant blow to Pakistan, announcing the cancellation of $600 million in promised loans. Additionally, the country will not receive any budgetary support for the current fiscal year, according to a report by The Express Tribune.

The report states that Pakistan failed to fulfill key conditions for securing loans, including revising power purchase agreements under the China-Pakistan Economic Corridor (CPEC). As a result, the World Bank has withdrawn budget support loans exceeding $600 million.

The organization clarified that it will not provide any new budgetary support loans to Pakistan for the ongoing fiscal year. This decision also eliminates Pakistan's anticipated request for an additional $2 billion in budget support, potentially leaving a significant gap in the country’s budget.

Cancellation of PACE-II Loan

Government sources revealed that the World Bank canceled a loan of $500-600 million under the Affordable and Clean Energy Program (PACE-II). The program initially received approval from the World Bank in June 2021, with the first installment already disbursed.

However, the second phase required Pakistan to provide copies of agreements signed with all power producers (IPPs), including Chinese power plants under CPEC. Due to objections from China, Pakistan was unable to share the required information with the World Bank, leading to the cancellation of the loan.

Electricity Prices at Unsustainable Levels

Electricity prices in Pakistan currently range between PKR 65-70 per unit, putting immense pressure on poor and middle-class households. To address this, the government is negotiating with private power producers to reduce electricity prices. However, no tangible results have been achieved thus far.

This development comes as a major setback to Pakistan's financial stability, further complicating efforts to manage its already strained budget.