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Pakistan may face debt loan cancellation of 730 million dollars

ISLAMABAD: The World Bank  identified that pakistan has at least nine troubled projects that may face loan cancellation of over $730 million, including concessionary financing of $400 million, which underscores serious problems in their design and execution.

Out of the concessionary loans of $400 million, the World Bank has highlighted that the lending of $320 million can be cancelled under Pakistan’s quota and the rest for two projects that also have allocation from the regional quota, according to documents.

The money saved from the potential cancellation of these loans can still be given to Pakistan, if it manages to timely execute the flood-related projects.

Documents of the World Bank and the federal government showed that in addition to the nine troubled projects, there were many schemes of hundreds of millions of dollars that were falling behind the completion schedule.

They showed that based on the progress till June 2022, the World Bank highlighted that at least nine foreign-funded schemes may see the cancellation of loans. The exercise had been done before the devastating floods struck Pakistan.

The Washington-based lender was also in the process of identifying more schemes from where funds could be channelled towards the flood-related projects.

The total value of loans facing the threat of cancellation is roughly $731 billion. These include $400 million lending by the International Development Association (IDA) – a concessionary arm of the World Bank Group.

A $82 million IDA loan, allocated under the regional quota, could also be affected.

The cancellation of IDA lending is considered a serious issue, as countries often fight for getting access to the cheaper long-term loans, even if they have the financial muscle.

Another $330 million has been identified out of the lending made by the International Bank for Reconstruction and Development (IBRD) –another arm of the World Bank Group that extends loans at internationally competitive rates.

The World Bank is funding 54 operations in Pakistan costing $13 billion, which include both the IDA and IBRD loans. However, 67% of the portfolio is undisbursed while the ratio is 61% for the federal projects.

In the previous fiscal year, the World Bank disbursed $1.6 billion, down from $2.1 billion in the preceding year.

Foreign-funded projects have always remained behind schedule and are often restructured due to implementation-related challenges. These projects have mostly been designed by international consultants.

The World Bank has taken a lead role in assessing the damages and losses caused by the floods and to partially meet the financing requirement.

“The depth loan of the crisis in Pakistan is unprecedented. From the initial damage assessment, and indeed from my firsthand experience while visiting the affected communities, we know that the scale of the disaster is enormous, exceeding the damage of both the 2005 earthquake and the 2010 floods,” said Martin Raiser, World Bank Vice President for South Asia, while speaking at a donors’ conference in Washington.

He, however, emphasised that “international assistance will be critical to recovery, but it can only be effective in supporting a resilient and inclusive recovery if the government maintains the momentum of its economic reforms.”

The statement suggests that the World Bank will not relax certain conditions that it has imposed for the release of budget support loans.

Details showed that the bank might cancel a loan of $200 million for the Punjab Sustainable Rural Water Supply and Sanitation Project, including a concessionary financing of $100 million. Total cost of the project is $442.4 million.

The lender has also identified the Punjab Resource Improvement and Digital Effectiveness Project for the cancellation of a $100 million loan against the total cost of $304 million.

The Higher Education Development Project may see a minimum reduction of $80 million in a concessionary loan against the total cost of $400 million.

Approved in 2019, the project has remained problematic and a few months ago the World Bank’s implementation support mission recommended cancelling the loan portion for the work that could not be finished in the remaining period of the project cycle.

The Punjab Agriculture and Rural Transformation Programme may see the cancellation of a $70 million loan against the total cost of $300 million.

The $425 million National Transmission Modernisation Project’s loan of $50 million could also be cancelled. The transmission project had been approved in 2017 and till June 2022, $389 million had remained unspent.

Similarly, the Pakistan Hydromet and Climate Services Project can face the cancellation of a $110 million loan, which includes $14.6 million from the regional quota. In May 2018, the project’s total cost was $188 million and till June $175 million had remained unspent.

This project has already been declared unsatisfactory by the World Bank. A $100 million loan for the Khyber-Pakhtunkhwa Economic Corridor project may also be cancelled. With the total cost of $436 million, the project was approved in 2018 but was facing serious implementation issues.