Pakistan on Tuesday signed a loan agreement worth $787 million with the World Bank to revamp water supply and sewerage system in the country.

Economic Affairs Division Secretary Noor Ahmed signed the loan agreements on behalf of Pakistan while the representatives of Sindh, Khyber Pakhtunkhwa and National Transmission & Despatch Company (NTDC) signed the agreements for their respective projects. WB Country Director for Pakistan Patchamuthu Illangovan signed the agreements on behalf of World Bank.

Economic Affairs Minister Hammad Azhar was also present on the occasion.

The loan has been granted for projects related to urban mobility, urban management & service delivery, improved water and sewerage services, tourism and power sectors.

As per details, an amount of $382 million would be spent on Karachi Mobility (Yellow Line) Project. The objective of the project is to improve mobility, accessibility and safety along the yellow line Bus Rapid Transit (BRT) Corridor in Karachi. The project will help develop urban road infrastructure (Yellow Corridor), rehabilitate or reconstruct road infrastructure along the yellow corridor, and develop and operationalise a BRT system.

Read more: Pakistan among top 15 countries reducing extreme poverty: World Bank

Meanwhile, $40 million has been earmarked for the Karachi Water and Sewerage Services Improvement (1st Phase) Project. The project aims to improve access to safe water services in Karachi and to increase Karachi Water and Sewerage Board (KWSB)’s financial and operational performance.

Likewise, an amount of $230 million would be spent on Competitive and Livable City of Karachi Project. The objective of the project is to improve the performance of Karachi local councils and agencies in urban management, financing and service delivery; and to improve the business environment for private sector development in Karachi.

The World Bank country director, while appreciating the reforms initiatives of the government, committed to extending possible support and facilitation to the government to help put the economy back on track.

Khyber Pakhtunkhwa Integrated Tourism Development Project would receive funding of $70 million. The project would help improve tourism-enabling infrastructure, develop tourism assets, and strengthen management for sustainable tourism development in KP.

Moreover, the agreement also included additional financing of $65 million for Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000). The objective of the ongoing project is to create suitable conditions for sustainable electricity trade of 1,300MW between Central Asian countries (Tajikistan and the Kyrgyz Republic) and South Asian countries (Pakistan 1,000MW, Afghanistan 300MW).

Speaking on the occasion, Economic Affairs Minister said that the signing of five projects worth $787 million indicates the World Bank’s resolve to support the development agenda of the incumbent government.

The World Bank country director, while appreciating the reforms initiatives of the government, committed to extending possible support and facilitation to the government to help put the economy back on track.

Pakistan’s Debt Repayment

PTI’s rhetoric stands to blame previous government policies that have indebted the country. While that remains true, PTI will inevitably continue this trend of taking loans like its predecessors.

Read more: Pakistan Eyes $250 Million World Bank Loan Aimed at Strengthening Human Capital

It is natural for a country to float bonds, finance infrastructure projects through long-term debt instruments, and use capital markets, both domestic and external, to meet its financing needs. Therefore, the plans agreed upon with the World Bank for sustainable development of the country stand commendable.

However, it is important for countries to follow a carefully calibrated borrowing policy that minimises the various risks associated with taking on additional debt, such as interest rate and refinancing. Therefore, policymakers need to make sure Pakistan is able to pay back or rollover these loans in the medium to long term.

Total external debt in Pakistan has increased overtime from 2008-2018 according to State Bank Annual Reports:

world bankSource: State Bank of Pakistan Annual Report 

This trend is predicted to continue given the fast tracked pace of projects under the China-Pakistan Economic Corridor which takes a hit at our external debt.

While the recent trade of Treasury Bills through foreign investors paints a hopeful picture for minimizing external debt, or at least make timely repayments possible, it does not tackle the issue of domestic debt which accounts for majority of Pakistan’s debt problems.

world bank

Source: State Bank of Pakistan Annual Report 2018-2019

The World Bank has taken several other initiatives aimed at the development of Pakistan in 2019 such as the provision of loans worth $918 millions for higher education and KPK’s revenue mobilization programme announced in June but the government should have economically viable plans in place to avoid further exploitation at the hands of international institutes.