World Bank Cancels $500 Million Loan to Pakistan Over Unmet Conditions
Pakistan's energy sector remains a significant challenge, with high electricity tariffs and inefficient power agreements
Islamabad: The World Bank has officially canceled a budget support loan worth between $500 million and $600 million to Pakistan after the government failed to meet crucial conditions tied to the loan, including renegotiating power purchase agreements (PPAs) under the China-Pakistan Economic Corridor (CPEC).
The loan was part of the World Bank’s “Affordable and Clean Energy Program” (PACE-II), which aimed to support Pakistan’s energy sector reforms. The initial tranche of $400 million was disbursed in June 2021, but the second tranche, which was contingent on key policy changes, has now been withheld.
The conditions included renegotiations with Independent Power Producers (IPPs), especially those involved in CPEC projects. However, progress on these renegotiations has stalled, with China refusing to reopen or restructure energy deals worth $16 billion. As a result, Pakistan has been unable to meet the requirements set by the World Bank.
In addition to the loan cancellation, the World Bank has announced that it will not be providing any new budget support loans to Pakistan for the remainder of the current fiscal year. This move could disrupt the government’s financial plans, as it had relied on securing $2 billion in loans to meet its fiscal targets for the year.
Pakistan’s energy sector remains a significant challenge, with high electricity tariffs and inefficient power agreements. The government has been negotiating to reduce electricity tariffs and has renegotiated 22 energy contracts, but the desired cost reductions have not materialized. The current power tariffs remain high, and the government is also hesitant to remove subsidies that protect low-usage consumers.
Read More: IMF Imposes Stringent Conditions for Pakistan’s $1.1 Billion Loan Tranche
A spokesperson for the World Bank confirmed the slow progress on energy sector reforms and clarified that there are no new budget support loans planned for the remainder of the fiscal year, which ends in June 2025. However, the bank emphasized its continued commitment to supporting energy reforms in Pakistan through the PACE initiative.
