(Upates with quotes, figures)
By Katharine Houreld and Maria Golovnina
ISLAMABAD May 2 The World Bank has approved a
$12 billion loan for cash-strapped Pakistan that will be
disbursed over five years, the country's finance ministry and
the global lender said on Friday.
The ministry said the money will target "energy, economy,
(fighting) extremism and education", with $1 billion being
transferred to Pakistan in the next week.
The loan will carry a 2 percent interest rate and is
repayable after 30 years.
"The government of Pakistan deserves appreciation for
stabilising the economy, initiating reforms in the power sector
as well as revenue mobilisation and drawing in the private
sector for spurring growth," said Philippe H. Le Houerou, vice
president of World Bank Group's South Asia region.
Pakistan is struggling to deal with a massive energy crisis,
high unemployment and a shortfall in tax revenue. It has
borrowed heavily to pay to cover government expenditure.
The nuclear-armed nation of 180 million relies on imported
oil to run most of its electricity grid, but often cannot afford
to pay for it, causing daily power cuts that have damaged many
The World Bank said it would extend a credit of $600 million
to reform the power sector, while $400 would help "create jobs
and economic opportunity for all". It did not say what specific
projects were planned.
"The power development policy credit is structured around
three objectives: targeting power subsidies to the poorest and
improving tariff policy, improving sector performance and
opening the market to private participation, and ensuring
accountability and transparency," the World Bank said.
BALANCE OF PAYMENTS CRISIS
The country was facing a balance of payments crisis last
year and had only enough cash for one month's worth of imports
before the International Monetary Fund approved a loan package
of $6.7 billion in September.
Since then, Finance Minister Ishaq Dar has helped boost the
country's cash reserves.
In February, Saudi Arabia gave Pakistan a gift of $1.5
billion. In April, Islamabad raised $2 billion in a Eurobond
offering and $1.1 billion from an auction of 3G and 4G
But money remains tight. The IMF loan is largely being spent
on repaying a previous one from the Fund.
Pakistan needs about $1 billion a month to pay for its
imports, and energy demand will peak during the sweltering
summer months to come.
The first tranche of World Bank money will be spent on
refinancing short-term, high-interest loans that the government
Pakistan is facing a large shortfall in tax revenue. Some
wealthy Pakistanis pay no income tax, which the government has
repeatedly promised - and failed - to change.
Many legislators and some ministers evade tax, according to
the Center for Investigative Reporting in Pakistan, a
Social services and infrastructure are crumbling while
politicians splurge on personal bodyguards, foreign trips,
luxuries and land for their personal use.
Activists say rage at government corruption and neglect are
fuelling two insurgencies. The Taliban are fighting to overthrow
the government in the northwest, and separatist Baluch rebels
are fighting for independence in the west.
(Editing by Michael Perry, Richard Borsuk and Ron Popeski)