Pakistan ranks high on the vulnerability index: World Bank changes lending category

[Naveed Yaseen]

By Sajid Chaudhry
ISLAMABAD: Due to the high ranking in the vulnerability index, World Bank has changed its lending arrangements for Pakistan from ‘programme loans’ to ‘project loans’ resulting in releases of funds in periodical installments instead of release in one go, official sources told Daily Times on Wednesday.

Programme loans are comprised of loans for reform programme that require funding in one go for entering in to implementation phase, however, project lending requires hectic work from documentation to implementation and lending for these types of loans comes in installments keeping in view the progress on the project.

Some quarters in the government lamented that International Financial Institutions (IFIs) feel comfortable while working with non-elected governments and dictatorship. While on the other hand, IFIs always apply tough conditionalties while dealing with democratic governments.

Delay in issuance of Letter of Comfort (LoC) by the International Monetary Fund (IMF) authorities is delaying disbursement of loans from the World Bank and Asian Development Bank to Pakistan.

At present Pakistan desperately needs release of funds so that it could beef up its depleting foreign exchange reserves, stop further depreciation of Rupee as well as to meet enhanced imports requirements in the months to come.

The International Monetary Fund (IMF) will decide whether Pakistan’s economic conditions are vulnerable or not and will issue certificate to the lending institutions. At present Pakistan is awaiting for start of lending by the World Bank and Asian Development Bank, an official informed.

Vulnerability index is comprised of many factors like different economic indicators i.e. fiscal situation, economic growth, current account deficit, and inflation. The countries, whose economic indicators in negative zone face difficulties in obtaining new loans.

The country is facing tough situation on all economic fronts as economic growth remained at 5.8 percent against the target of 7.2 percent in 2007-08, foreign exchange reserves are declining at a rapid speed, inflation is ranging in double digit and current account deficit is also likely to increase against the projected figure.

During the last government’s tenure, Pakistan’s economic indicators and fundamentals were very strong and IMF had no problem in issuance of LoC to lending institutions for starting a new loan programme.

Although they have agreed to issue LoC to Pakistan, however, at present Pakistan’s economic fundamentals are not up to the mark and Fund authorities are delaying issuance of LoC till the board meeting.

Although the present government has taken bold decisions and initiatives in its honeymoon period, it failed to please the high ups in the IFIs. PPP led coalition government has taken decisions like increase in gas tariff, POL price, and electricity prices.

http://www.dailytimes.com.pk/default.asp...2008_pg5_1