The government is congratulating itself for securing a $1billion loan from the World Bank, which will be given to Pakistan in the next week or so, in addition to another $11 billion to be handed over the course of the next five years for developmental projects. Experts are calling this ‘cheap money’ considering the repayment of this money will be spread out over 25 years starting in 2019, with a very nominal interest rate of 2.5%. Ishaq Dar was quick to point out potential advantages of this loan, such as the rise in the country’s foreign exchange or using it to reduce the country’s domestic debt which stands at Rs 100 billion at an interest of 12.5% per annum.
The government will be disappointed that the World Bank is not interested in funding the Diamer-Bhasha dam, but this was also expected considering that the expected cost of the mega project in 2008 was $12.6 billion. As a creditor, the World Bank will naturally make decisions based on financial feasibility. Even if it is willing to lend a portion of the cost, it will not do so, because it knows that Pakistan will not be able to gather the rest of the funds. An unfinished project of this scale is of no use to anyone, and the World Bank’s advice to look at alternatives such as the Dasu hydropower project should be taken seriously.
The most pertinent question now is how this money will be spent. The World Bank has rightly pointed out that the need of the hour for the country is to work on the power sector, and the money is being delivered in two portions with this in mind. The total sum of $12 billion opens up a plethora of options for the development of the country. It is important that this opportunity is not wasted on schemes such as a railway line extending from Islamabad to Murree, or to hand out laptops to every child in the country, but on concrete measures that add to the country’s infrastructure.
The provision of this loan has been on the cards for a while, which raises additional questions about Dar’s initiative of the disputed Eurobond scheme. Why was there a need to rely on the open market with Eurobonds worth a whopping $2 billion if there were options like this available? At this point, Pakistan stands to lose more from risks such as this than ever before. The need of the hour is to work on the structural deficiencies like those in the energy sector, so that the economy does not cripple itself as it has done in the past, because of working beyond its capacity. The economy’s setbacks must be overturned before we risk sinking even deeper in to the slump we find ourselves in.