World Bank approves $20 billion loan

The World Bank board has approved a $20 billion loan package for Pakistan, but the framework document stated there will be challenges in its successful implementation due to political divisions and a worsening security situation in two provinces.The Country Partnership Framework (CPF) for the 2025-2035 period lists the political divide in Pakistan and the deteriorating security situation in Balochistan and Khyber-Pakhtunkhwa (K-P) as “critical” risks to the successful implementation of the $20 billion official lending package.The framework, officially released after approval by the World Bank Group’s Boards of Executive Directors, may help improve the country’s poor economic indicators during the implementation period. The $20 billion package aims to reduce Pakistan’s learning poverty, improve poor health outcomes, and protect people against climate change risks.Before approving the plan, the World Bank projected economic growth of just 3.8% in 2029, a budget deficit of 6% of GDP, and a debt-to-GDP ratio of 73% — three key indicators of economic health.In October last year, the World Bank also projected foreign direct investment at a mere 0.6% of GDP by 2029. It now aims to boost investment through its private funding arms, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA ).Of the $20 billion, the World Bank plans to provide $14 billion in concessional loans, with the remaining $6 billion at relatively higher interest rates.”Our new decade-long partnership framework for Pakistan represents a long-term anchor for our joint commitment with the government to address some of the most acute development challenges facing the country: child stunting, learning poverty, its exceptional exposure to the impacts of climate. change, and the sustainability of its energy sector,” said Najy Benhassine, World Bank Country Director for Pakistan.He added, “Support to policy and institutional reforms that boost private sector-led growth and create fiscal space to finance the investments needed to address these challenges will remain key in our engagements.”The framework will support six key outcomes: reducing learning poverty through quality foundational education, lowering child stunting through improved access to clean water, sanitation, health, and family planning services, and increasing resilience to floods and climate-related disasters.Other focus areas include improving food and nutrition security, promoting sustainable energy, enhancing air quality, increasing fiscal space, and encouraging more productive and inclusive private investment.The World Bank noted that the framework aligns with the recently launched National Economic Transformation Plan, Uraan Pakistan, and the Prime Minister’s Economic Transformation Agenda.The government’s economic transformation agenda targets 6% annual growth by fiscal year 2028 without a balance-of-payments crisis. The 13th Five-Year Plan (2024-2029) also sets a 6% growth target for 2029. However, the World Bank’s October 2024 projections suggest a more modest growth rate of 3.8% for that year.The World Bank said that Pakistan’s growth model – dominated by public consumption, high debt levels, low productivity, and poor capital accumulation – is unsustainable. It calls for increased investment and productivity, alongside heavy investments in human capital, to unlock the country’s long-term growth potential.Last year, the World Bank projected a budget deficit of 6% of GDP by 2029, nearly double the limit set under an act of Parliament. It remains unclear how much improvement will result from the government’s plans and the World Bank’s $20 billion injection.Pakistan’s per capita income has long stagnated, while high rates of child mortality, child stunting, fertility, and learning poverty persist. This reflects decades of underinvestment in health, education, water, sanitation, and other public services, said the World Bank in the press statement.The framework document identifies high political risk, noting that new episodes of heightened tensions could lead to fiscally unsustainable policy decisions, especially regarding energy subsidies and tax exemptions. Coordination challenges and inconsistent policy stances between the federal and provincial governments exacerbate these risks.The World Bank also highlighted rising fragility, particularly in Balochistan and the former Federally Administered Tribal Areas of K-P. Violence has increased in these regions over the past year, intensifying what was previously a low-intensity conflict. These areas suffer from the worst human development, poverty, and economic outcomes in Pakistan, particularly for women.Operating in these regions will become increasingly challenging due to security risks, requiring further conflict-sensitive analysis to understand how to meet development needs through investments in basic services and institutional support, it added.