Islamabad, December 13, 2024: The World Bank has cancelled a $500 million budget support loan to Pakistan due to delays in implementing key conditions, including revising power purchase agreements under the China-Pakistan Economic Corridor (CPEC). No new budget support loans will be provided this fiscal year, affecting Pakistan’s projection of $2 billion in fresh loans.
The cancelled loan was part of the Affordable and Clean Energy (PACE-II) program. While the first tranche of $400 million under PACE-I was released in June 2021, progress on required reforms, such as renegotiations with Independent Power Producers (IPPs), has been slow. Efforts to renegotiate contracts with Chinese power plants have stalled, with China refusing to restructure $16 billion in energy debt.
Despite renegotiating 22 energy contracts, electricity prices remain high at Rs65–70 per unit, including taxes. The government’s reluctance to eliminate a cross-subsidy of Rs16 per unit further limits price reductions.
A World Bank spokesperson attributed the cancellation to “slower-than-expected progress” in energy sector reforms. The Bank has shifted focus to supporting low-cost hydropower projects like Dasu and improving electricity distribution efficiency.
The inefficiencies of power distribution companies caused Rs660 billion in losses last fiscal year, with circular debt rising to Rs2.393 trillion—well above agreed targets with the IMF and World Bank. The IMF had identified a $2.5 billion external financing gap for this fiscal year, which Pakistan now struggles to bridge.
Finance Minister Muhammad Aurangzeb remains optimistic, asserting that Pakistan will secure financing on favorable terms despite its CCC+ credit rating, which limits access to global capital markets.
