The World Bank has cancelled over $500 million loan to Pakistan as the country failed to meet essential conditions, including renegotiating power purchase agreements tied to the China-Pakistan Economic Corridor (CPEC).
A World Bank spokesperson confirmed that no new loans for Pakistan this fiscal year, with only about $349 million disbursed so far.
Cancelation of this loan from the bank is expected to impact Pakistan’s budget for running year.
It is worth noting that the World Bank had agreed to give $500 million, later raised to $600 million, for the financial stability of Pakistan. As per the agreement the World Bank released the first payment of $400 million, but agreed to give second payment with certain conditions. This included talks with independent power producers (IPPs), especially those linked to CPEC power plants.
However, negotiations with China have not worked out. China refuses to change the deals, including a large debt of about $16 billion. Efforts to reduce electricity prices by renegotiating older energy contracts have also failed.
Pakistan was also supposed to fix inefficiencies in its power sector and reduce debt, but these goals have not been met.
For not meeting the World Bank conditions, it has announced to cancel the second payment of $500 million. However, despite the setback with the World Bank, Finance Minister Muhammad Aurangzeb stated that the government is hopeful to negotiate with the World Bank on competitive terms and is looking into a $1 billion Eurobond loan.
