World Bank to loan Pakistan $20B for economic and climate goals

The World Bank plans to loan cash-strapped Pakistan $20 billion over the coming decade to nurture its private sector and bolster resilience to the climate crisis, Prime Minister Shehbaz Sharif said.

Pakistan came to the brink of default in 2023, as a political crisis compounded the shock from the global economic downturn and drove the nation's debt burden to terminal levels.

It was saved by a $7 billion bailout from the International Monetary Fund (IMF) and has enjoyed a degree of recovery, with inflation easing and foreign exchange reserves increasing.

Sharif said the World Bank funding would be used for "child nutrition, quality education, clean energy, climate resilience, inclusive development and private investment".

The deal "reflects the World Bank's confidence in Pakistan's economic resilience and potential," he said on social media platform X on Wednesday.

Targetting economic recovery

The IMF deal -- Pakistan's 24th since 1958 -- came with stern conditions that the country improves income tax takings and cut popular power subsidies, cushioning costs of the inefficient sector.

The World Bank said the new $20 billion scheme would begin in the fiscal year 2026 and last until 2035.

"The economy is recovering from the recent crisis as the government has launched an ambitious programme of fiscal, energy and business environment reforms," said a summary of the plan released by the World Bank.

But it warned that a "track record of past stop-and-go reform episodes handicaps the government's credibility", meaning that new investment may be "slow to materialise".

The World Bank therefore plans for "more selective, stable, and larger investments in areas critical for sustained development and that require time and persistence for impact", it said.

The World Bank's Pakistan director Najy Benhassine said in a statement the deal "represents a long-term anchor" that will "address some of the most acute development challenges facing the country".