World Bank approves $825-million loan for Pakistan infrastructure

KARACHI: The World Bank has granted Pakistan an $825-million loan to upgrade the energy and public finance sectors in a country that has long struggled with chronic power shortages and poor fiscal management.

Just over half the loan — approximately $425 million — would be used to modernise the national grid under National Transmission Modernization Project-I (NTMP-I), the World Bank said Wednesday, to enable new power generation to reach consumers by upgrading, expanding, and rehabilitating selected 500kV and 220kV substations and transmission lines.

The government has had some success in generating more electric power to ease a years-long energy crisis but its distribution has been hampered by poor transmission.

Prime Minister Shahid Khaqan Abbasi said recently that 10,000 megawatts had been added to the national system, with another 10,000 megawatts available in the next two years.

“With a substantial volume of [the] new generation now coming online, the strengthening of the transmission and distribution systems is critical,” Illango Patchamutu — the country manager for the World Bank — said in a statement.

“The improved power supply will help meet the unserved demand from consumers and reduce the number and duration of power outages,” he added.

The NTMP-I will improve supply reliability and lower the losses in the transmission network.

The project will also modernize the information and communication technology infrastructure and strengthen the financial and accounting systems of the National Transmission and Dispatch Company using information technology.

This, in turn, will result in more efficient operation and business decision-making processes, higher productivity, and upgraded staff skills.

The NTMP is financed by the International Bank for Reconstruction and Development (IBRD) — a part of the World Bank Group that lends to credit-worthy low- and middle-income countries.

It is a fixed-spread loan with a maturity of 21 years, including a 6-year grace period.

However, public financial management inefficiencies contribute to Pakistan’s weak performance in health and education sector, and, despite a substantial increase, the financial resources fail to reach clinics and schools on time.

PFM

The remaining $400 million was allocated — under the Public Financial Management (PFM) reform program — to improve the management of public finances and, thus, assist the delivery of much-needed health and education services.

This will address the aforementioned challenges through the enactment of a robust public-finance management law, leading to the decentralization of payments and empower the front-line service delivery managers.

“The public financial management challenges undermine the delivery of health and education services to the population”, said Patchamutu.

“The new program will support the government to strengthen their public financial management and make it more transparent and accountable by introducing new aspects [such as] social audit of public expenditures by beneficiaries.”

The program will also focus on strong cash management, timely and comprehensive reporting, improved federal-provincial coordination, timely release of funds, streamlined payroll and pension systems, efficient and transparent procurement, and user-friendly reports for citizen engagement.

The PFM reform program is financed by the International Development Association — the World Bank’s fund for the poor — with a 25-year maturity, including a 5-year grace period.

Economy, at present

Pakistani economists are wary of the country’s hefty fiscal deficit of around four percent of the gross domestic product (GDP).

The nation’s economy grew 5.3 percent in the fiscal year up to June 2017 and the government has set a growth target of around six percent for the current year.

A record trade deficit of $15 billion for the first four months of the current financial year has also caused jitters about a potential balance of payments crisis.

The value of the rupee has fallen by roughly five percent in recent weeks against US dollar.