World Bank loans

The World Bank's decision to provide 6.5 billion dollars in loans to Pakistan over a period of four years, comprising soft loans of 3.1 billion dollars under IDA and 3.4 billion dollars under regular credit, has been hailed as a great success.
According to Prime Minister Shaukat Aziz, the decision was truly historic, as no other country had ever been pledged a mammoth amount as this over such a period. It would give a big boost to the economy by providing resources for infrastructure improvement and human resource development, including health and education. The unusually high amount committed by the World Bank would also enable the government to achieve its objectives of food, water and energy security and invest in building energy, transportation and trade corridors between Pakistan and Central Asian States.
Indirectly, it would contribute towards job creation, lead to further high growth and result in poverty alleviation. Coming a little before the announcement of the national budget, the Bank's decision would inspire more confidence among international lenders and investors in Pakistan's economic potential and its development strategy.
The Prime Minister was also pleased that the IFC had upscaled its investment from 500 million dollars to 600 million dollars over a period of six years for the private sector, which would be a catalyst in attracting equity investment and give a further boost to the economy.
The offer of such a huge loan, almost half of which will be in soft loans, is definitely a matter of great joy and pride for the people of Pakistan. It reflects a clear vote of confidence in the country's present economic management and its reform agenda. It was not long ago that our economic managers had to bend over backwards and accept almost all the conditionalities dictated by various IFIs to get small loans.
The situation has changed a lot during the last few years and now the same IFIs feel pretty comfortable in dealing with the country and offering assistance to it. However, it needs to be remembered that in order to maintain this relationship, it is necessary for the country to continue to pursue the reform programme already agreed. One of the main elements of the reform agenda is the elimination of subsidies on which the government, of late, seems to be dithering and inclined to ignore.
For instance, the government is reported to be contemplating to freeze power tariffs of Wapda's distribution companies till the general elections next year as part of its political strategy and no proper mechanism has been evolved yet to bridge the widening gap between the income and expenditures of Discos. The Government is, though, very touchy about power outages as this issue could be made a part of opposition's election campaign.
Wapda's distribution companies had sought Rs 4 to Rs 4.5 per unit increase in the tariffs, but NEPRA had allowed only a Rs 2 to Rs 2.25 raise. Overall, a confusing situation is now prevailing in the Ministry of Water and Power and NEPRA, and World Bank is receiving mixed originals over the issue. The World Bank has already asked Pakistan to do away with subsidies to domestic gas consumers.
On 2nd May, President Pervez Musharraf approved a strategy to pass on the benefits of the Rs 200 billion subsidy, provided in the budget, to the common man through the Prime Minister's relief package. The reaction of the World Bank to this policy or inaction would, of course, be unfavourable because subsidies are generally regarded as contrary to sound economic principles. We feel that the Government of Pakistan needs to be very cautious while accepting the loan offer of the World Bank.
If it cannot meet the commitments on the agreed reform agenda items in time due to the coming elections or any other compulsion, it would be better to avoid the loan agreement for the time being. It would be no use coining excuses for non-implementation of the proposed measures later on, and delaying utilisation of the loan amount but still paying commitment charges unnecessarily.
Another aspect which needs to be considered very seriously is the optimum utilization of the World Bank loans. We have seen that a good part of the loans in the past was frittered away with the result that indebtedness of the country continued to rise while no visible impact was made on the lives of ordinary people.
Therefore, the present government needs to ensure that future loans are effectively utilised to enhance productivity of the economy and promote welfare of the people. If this cannot be guaranteed, it would be extremely selfish to add to the debt burden of future generations without giving them much in return.