WB to provide $3.7 bn to Pakistan in four years
By Mehtab Haider
ISLAMABAD: The World Bank (WB) is committed to provide loans amounting to $3.7 billion to Pakistan for priority areas in next four years including $924 million for Poverty Reduction Support Credit (PRSC)/public financial management, $850 million for energy sector, $275 million for water/ports and $1.115 billion for education sector.
According to WB’s Country Partnership Strategy (CPS) which was officially released on Saturday, reads out that the priority lending programme amounts to an estimated $3.7 billion (IBRD/IDA), equivalent to about 60 percent of a total potential financing envelope of up to $6.2 billion (including MDTF financing) during the CPS period.
For social safety nets the Bank will lend $300 million to Pakistanis well as it will also provide $100 million for rehabilitation efforts in Khyber Pakhtunkhwa, Fata and Balochistan under the initiative of Multi Donor Trust Fund (MDTF).
Dwelling upon Pakistan’s economy and its medium term outlook, the CPS states that total government debt (including obligations to the IMF) as a share of GDP is projected to rise from 59.3 percent in 2008/09 to 62.4 percent in 2009/10. About half of the debt is external and half domestic. Total debt is projected to remain over 60 percent of GDP in the medium term, but thereafter decline.
The external debt-to-exports ratio rose to 220 percent in 2008/09, is projected to peak at 273 percent in 2011/12 and start thereafter gradually declining.
However, debt sustainability analysis suggests that external debt service remains manageable although there are potential risks to this assessment from sources such as lower than projected growth and foreign direct investment (FDI), and higher than projected current account deficit, interest rates and exchange rate depreciation.
Credit to the private sector, the CPS states, fell dramatically after the onset of the crisis as economic activity slowed, but is showing signs of recovery.
Thanks to large government borrowing to finance budgetary needs, and a surge in credit demand by public sector enterprises, banks have been able to avoid lending to the relatively risky private sector as non-performing loans (NPL) increased.
During the first nine months of 2009/10, the credit demand for government budgetary operations and public sector enterprises stood at Rs404 billion, more than three times the size of credit demand in the private sector. While the economy is stabilizing, continued improvement in the macroeconomic situation will remain a challenge, the WB forecasts say.
Global economic recovery has started, but remains fragile and slow. Global trade is projected to remain depressed and unemployment high for years in a large part of the world.
Pakistan can expect little in the way of a substantial growth impetus from global markets. Pakistan’s future economic prospects will hinge on good economic policies and management, it added.
According to the government’s medium-term macroeconomic framework, which is supported by the IMF’s Stand-By Arrangement, Pakistan’s real GDP growth is projected to start recovering slowly at 3 percent in 2009/10, and increase gradually to 5 percent by 2012/13.
However, longer-term projections are particularly uncertain in view of the volatile global and domestic economic environment.
The external current account deficit is projected to widen again to 4 percent of GDP in 2010/11 as imports pick up slowly. Remittances were projected to grow by 7 percent in 2009/10, and continue to grow at 6.5 percent thereafter with the help of government’s remittance drive.
Source: The News