The World Bank canceled loans worth $500-$600 million for Pakistan. The government failed to meet key energy sector conditions. The World Bank Loan Cancellation was due to unmet requirements, including revising power purchase agreements tied to CPEC projects. This decision disrupted Pakistan’s hopes of securing $2 billion in new loans for FY25. The World Bank Loan Cancellation severely impacted the government’s financial plans.
The loan was part of the Affordable and Clean Energy (PACE-II) program, initially valued at $500 million and later increased to $600 million. Pakistan received $400 million in June 2021, but failed to meet conditions, including renegotiating agreements with Independent Power Producers (IPPs) and Chinese firms under CPEC. As a result, the World Bank revised its lending strategy.
The World Bank will focus on improving Pakistan’s energy distribution system through projects like the Electricity Distribution Efficiency Improvement initiative. However, the World Bank will not issue new budget support loans this fiscal year, worsening Pakistan’s financial situation.
Circular debt, now at Rs. 2.393 trillion, surpasses targets set by the IMF and the World Bank. This growing debt makes it harder for Pakistan to bridge its $2.5 billion external financing gap.
To restore lender confidence and stabilize the economy, Pakistan must address energy sector inefficiencies and implement necessary reforms.
