Ministry denies reports of World Bank loan rejection

ISLAMABAD: The Ministry of Economic Affairs has refuted media reports attributing to the rejection of $500 million loan to Pakistan by the World Bank over failure to meet its key conditions.

The ministry in its rebuttal issued late Friday night clarified that the report was “misleading” and “false”.

 The spokesperson of the ministry added, “ The World Bank remains Pakistan’s largest multilateral development partner, with an active portfolio of 53 projects worth $15.33 billion”.

Earlier The Express Tribune had reported that the World Bank has cancelled a budget support loan worth over $500 million after Islamabad failed to meet key conditions, including revisiting power purchase agreements under the China-Pakistan Economic Corridor (CPEC).

The global lender has also decided not to provide any new budget support loans during the current fiscal year. This decision could disrupt the government’s financial estimates, which rely on securing an additional $2 billion in loans this year, according to a report published in The Express Tribune.

One major reason for withholding new loans is that Pakistan has nearly exhausted its borrowing quota.

Government sources revealed that the Washington-based lender cancelled the $500-$600 million loan under the “Affordable and Clean Energy Program,” known as PACE-II, the publication said.

Initially, the World Bank had agreed to provide $500 million but later hinted at raising the amount to $600 million to address the external financing gap.

In June 2021, the World Bank approved the PACE program and disbursed $400 million as the first tranche. However, the second tranche was tied to stringent conditions, including renegotiations with Independent Power Producers (IPPs), particularly Chinese power plants under CPEC. Officials confirmed that no progress was made on renegotiating the CPEC power agreements.

Sources added that China has repeatedly refused to reopen these deals or restructure energy loans worth $16 billion, according to the publication.

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The government has been negotiating with power plants established under policies from 1994 to 2002 to lower electricity tariffs. Meanwhile, Chinese and state-owned power plants, primarily comprising four LNG-based and two nuclear plants, were set up under the 2015 energy policy.

While the government has renegotiated 22 energy contracts, it has failed to achieve significant cost reductions in per-unit electricity prices. With taxes and surcharges included, power tariffs remain between Rs 65-70 per unit.

The government is also reluctant to abolish the Rs 16 per unit cross-subsidy, which shifts costs from low-usage consumers (under 200 units per month) to higher-usage ones. Eliminating this subsidy could significantly reduce the burden on residential and commercial users.

A World Bank spokesperson confirmed to the newspaper that progress on energy sector reforms had slowed. However, when asked about the PACE-II loan cancellation, she emphasized the bank’s continued support for reforms in Pakistan’s energy sector under the PACE initiative.

When asked if the World Bank will provide any new budget support loan to Pakistan, the spokesperson stated: “No budget support is in the pipeline for the current fiscal year,” ending in June 2025, the newspaper reported.