World Bank agreement

Pakistan has returned to international creditors to fill up its financial coffers. Instead of turning to the IMF to offer a new bailout, we have struck an agreement with the World Bank to provide $1.02 billion to the country. Half of the amount will be released as a single tranche before the end of the ongoing financial year. The rest of the amount has to be raised by Pakistan itself but with a World Bank guarantee. The guarantee is supposed to make it easier for Pakistan to access international finance to cover its financial deficit. Around $500 million will go towards continuing the process of economic reform started by the PML-N government under the IMF’s watch. One-third of the funds will go towards improving the business environment and improving fiscal management. The remaining $100 million will go towards improving Sindh’s ability to deal with natural disasters, including floods and drought. The World Bank has appreciated a more stable economy and revenue reform undertaken by the current government. Now it hopes Pakistan will undertake deeper reform which will allow private-sector growth. Privatisation of state enterprises is one of the stated objectives of the funding.

The decision to go to the World Bank shows that Pakistan’s financial troubles are not over, however much Finance Minister Ishaq Dar would like to suggest otherwise. The good thing about turning to the World Bank instead of the IMF is that the conditions attached will not be monitored on a quarterly basis. In theory, this would suggest that the World Bank cannot dictate how the next budget is formulated the same way the IMF has been able to as part of the terms and conditions of the current bailout. The trouble is, if Dar is correct, and the PML-N does manage to implement the budget deficit limits and the consensus economic plan he promised in his budget speech, there will be no need for IMF dictation. Its agenda would have translated into legal dictates that everyone must follow. The World Bank money may, however, successfully delay the need for another bailout for another year. But this does not mean, crucially, that Pakistan’s reliance on foreign debt to mitigate its budget deficits is over. A return to the IMF for another bailout remains very much on the cards, unless the federal government is able to perform a fiscal miracle over the next year. For now, the hard truth is that Pakistan is still reliant on international financial institutions to remain financially solvent.