ISLAMABAD - Pakistan has faced a serious setback as the World Bank refused to finance much-needed 4,500 MW Diamer Bhasha Dam, at least in next five years, 2015-2019, which might put the project on the back burner.
The World Bank’s Board of Directors on Thursday approved two different packages of assistance for Pakistan, including US$ one billion for support economic reforms and five-year Country Partnership Strategy (CPS) worth US$ 11 billion for next five years (2015-2019).
Rachid Benmessaoud, the World Bank’s Country Director for Pakistan, briefed the media on financial assistance packages through video link from Washington.
The WB’s CPS 2015-2019 does not include the financing of Diamer Bhasha Dam which is essential for the energy-starved nation as it has the capacity of producing 4,500MW electricity. Pakistan had sought the financial assistance of the World Bank and Asian Development Bank to finance the $14 billion Diamer-Bhasha dam. The World Bank remained reluctant to finance Diamer-Bhasha Dam and linked its willingness to an NOC from India - a condition unacceptable to Pakistan.
When asked, the World Bank country director for Pakistan did not answer the specific question on financing Diamer Bhasha Dam. In a video press conference from Washington, Rachid Benmessaoud said the government should empower Nepra to determine power tariff instead of playing its role in it. “There is no association of increasing power tariff with approval of the loan,” he replied to a question. However, to another query, he said, “Poverty trend in Pakistan is on the declining side and the government has initiated several programmes for poverty eradication.”
Earlier, he disclosed the Word Bank Group had approved a package of assistance worth US$ 1 billion to support Pakistan’s economic reforms on Thursday. The assistance package consists of two development policy credits (DPCs) to support the Pakistan government’s efforts to improve the power sector and reinvigorate growth and investment to reduce poverty and build a shared prosperity.
Meanwhile, the World Bank Group also approved new Country Partnership Strategy (CPS) for Pakistan, envisaging a notional financing envelope of $11 billion over the next five years (Fiscal Years 2015-19) for development in both public and private sectors.
Talking about the assistance of one billion dollars, the World Bank country director for Pakistan said US$ 600 million (with additional co-financing support of the Asian Development Bank and the Japan International Credit Agency) supports Pakistan’s goal of developing an efficient and consumer-oriented electric power system that meets the needs of its people and economy, sustainably and affordably.
The Power DPC focuses particularly on policy and institutional actions that will improve financial viability and thus reduce the burden of public financing for the sector. The Power DPC is structured around three objectives – targeting power subsidies to the poorest and improving tariff policy; improving sector performance and opening the market to private participation and ensuring accountability and transparency.
Meanwhile, he said, the World Bank Group had approved $400 million to support Pakistan’s goal of accelerating growth to help create jobs and economic opportunity for all. “The main development objectives of the credit are to increase private and financial sector development, improve the business environment, facilitate trade and promote financial inclusion and enhance revenue to create fiscal space for expanding social protection for the poor,” he said.
The two credits are financed from the International Development Association (IDA) and will be on standard IDA terms, with a maturity of 25 years, including a grace period of 5 years.
Rachid Benmessaoud said the WBG’s Pakistan Country Partnership Strategy is anchored in the government’s framework of 4Es – energy, economy, extremism and education – and the initial priorities priorities of the incoming Vision 2025. Enough flexibility has also been built into the strategy to allow quick reallocation of resources in case of unforeseen needs or emergencies.
“Helping Pakistan in deepening multi-sectoral policy reforms and performance-based investments in the social and human development sectors has guided the WB Group’s assistance strategy in the country over the last few years,” said Rachid Benmessaoud. “In formulating the new Country Partnership Strategy, a wide range of stakeholders, including civil society, media, youth, parliamentarians and federal and provincial governments were consulted. The new strategy is structured to help the country tackle the most difficult, but potentially transformational areas to reach the twin goals of poverty reduction and shared prosperity.”
Rachid Benmessaoud underlined four strategic pillars or result areas of the new Country Partnership Strategy that included transforming the energy sector, supporting private sector development, reaching out to the neglected and the poor, accelerating improvements in public service delivery and leveraging regional markets.
Meanwhile, the Finance Ministry has released a handout, stating the World Bank loans are purely concessionary in nature with repayment schedule spanning over a period of 30 years, including a five-year grace period, and the interest rate will be nominal – 2% per annum.
It is expected that US$ one billion will be transferred to Pakistan during the next week and it will increase Pakistan’s forex reserves substantially. On its receipt, an equivalent amount of Rs 100 billion will be reduced from the domestic debt which is much more expensive at 12.5% per annum. The WB loan will incur 2% interest per annum and the government of Pakistan will be saving net 10.5% in payment of interest on Rs 100 billion. Resultantly, there will be no net increase in overall public debt.