World Bank links approval of $450 million Pakistan loan with IMF review

A man is walking in front of the World Bank Building in Washington DC on September 25, 2020. (Photo courtesy: AFP/File)
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Updated 12 May 2023
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World Bank links approval of $450 million Pakistan loan with IMF review

  •  Pakistan and IMF have been in ninth review since February, aiming to resume stalled funding of $1.1 billion from $6.5-billion bailout
  • IMF funding is crucial for Pakistan to avert default on its external payment obligations during a balance of payment crisis

KARACHI: The World Bank has linked the approval of a $450 million loan for Pakistan with the completion of the ongoing ninth review of the international monetary fund’s $6.7 billion bailout program, the global lender has said. 

The second Resilient Institution for Sustainable Economy (RISE-II) is a policy loan for budgetary support for which the government of Pakistan is expected to receive $450 million from the World Bank. The program was expected to be approved in 2021 but has been delayed.

Nearly 100 days have passed since the last IMF staff level mission to Pakistan and the two sides have yet to strike a preliminary deal - a key step to secure the next funding tranche of a bailout deal signed in 2019. That is the longest such gap since at least 2008.

Meanwhile foreign exchange reserves at $4.457 billion cover barely a month's worth of imports.

A World Bank spokesperson told Arab News this week that considerable progress had been made and the RISE program would now be linked to the completion of the country’s ongoing IMF review. 

“The World Bank continues to work with the Government of Pakistan on the preparation of the RISE-II Development Policy Operation, including discussions around supported policy actions on which there has been considerable progress recently; the adequacy of the macroeconomic framework; the financing amount; and the timeline for approval, in particular, as it relates to the completion of the ongoing IMF review,” WB spokesperson Mariam Altaf said in an emailed response to Arab News.

The global lender had approved $500 million in financing under the RISE-I program for Pakistan to mitigate the impacts of the COVID-19 pandemic, while RISE-II was approved in 2020 to help Pakistan strengthen its fiscal management, promote transparency, increase private sector growth, and undertake foundational reforms in the energy sector to transition to low-carbon energy. 

RISE-II also supports foundational reforms to improve the financial viability of the power sector through a reduction and ultimate elimination of the sector’s circular debt, which was initiated under RISE-I. 

It further aims to improve the investment climate through the implementation of a nationwide harmonized General Sales Tax (GST), a competitive national tariff policy, an inclusive digital payments system that allows fintech companies to undertake electronic money operations, and a better-regulated banking system, according to a World Bank document. 

The South Asian nation is currently negotiating with the IMF for the conclusion of the ongoing review ahead of the fiscal budget for the next year, expected in the first week of June 2023. 

The talks between the Fund and Pakistani authorities are ongoing since November 2022 but no progress is in sight yet, as the IMF calls for more prior actions despite an energy tariff hike, the presentation of a mini budget, and the arrangement of additional financing from friendly countries like China, Saudi Arabia and the UAE.

The deadlock has blocked funding not only from IMF but also from other multilateral and bilateral lenders, including the World Bank. The conclusion of the ongoing review will clear the way for the disbursement of $1.1 billion from the Fund and unleash other bilateral and multilateral financing. 

Nathan Porter, mission chief to Pakistan at the IMF, last week said the lender was working with the Pakistani authorities to bring the ninth review to a conclusion once the necessary financing was in place and the agreement was finalized. 

“In addition, the IMF supports the authorities in the implementation of policies in the period ahead, including in the technical work to prepare the FY24 budget, which is to be passed by the National Assembly before end-June,” he said in a statement shared with Arab News.

In recent negotiations between Pakistan and the IMF, the fuel subsidy scheme announced by Prime Minister Shehbaz Sharif in March 2023 has been a sticking point but after prolonged discussions, Pakistani authorities have finally given up the subsidy, which envisaged charging the country’s rich and subsidizing the poor to mitigate the impacts of high inflation that hit 36.4% in April this year. 

Pakistani authorities have also committed that they will not introduce new tax exemptions and

durably allow a market-based exchange rate for the rupee, according to the report.

The country’s national currency on Thursday breached the psychological barrier of Rs300 against the United State dollar in the interbank market before closing at Rs298.93.

Pakistani analysts believe the recent rupee devaluation against the greenback, among other factors, is the outcome of the government’s assurance of a market-determined exchange rate to the IMF.

“There are three factors that contribute to the rupee depreciation,” Tahir Abbas, the head of research at Arif Habib Limited, told Arab News. “Political instability, market-based exchange rate implementation, and the demand for import payments are the key factors that impact the rupee against the dollar.”

The Pakistani rupee has depreciated by 24.25% so far since January 2023 and by 31.47% since July 2022.


In rural Sindh, a woman-led business finds a low-cost answer to tomato price swings

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In rural Sindh, a woman-led business finds a low-cost answer to tomato price swings

  • The company turns tomatoes into powder using a manual, sun-drying process that cuts production costs
  • It seeks partnerships with major food brands to expand beyond rural markets, tap into large urban centers

MIRPURKHAS: A small but fast-growing woman-led food company in southern Pakistan is using a simple, low-cost production method to turn tomatoes into powder, a product its founder says could cut costs for major food companies by as much as 50 percent while helping stabilize prices for consumers.

The business operates without electricity-driven drying machines, relying instead on manual labor and natural sunlight to dry tomatoes during periods of oversupply, when prices collapse and farmers are forced to discard produce.

The company, Red Royal Foods (RRF), is based in Jhuddo village in Sindh’s Mirpurkhas district and produces organic powder from ripe tomatoes that are sliced by hand, sun-dried over several days and treated with sea salt, without the use of artificial preservatives, additives or machines.

Founded and led by 24-year-old Zainab Munawar, RRF has grown from a small local operation into a supplier serving markets in Mirpurkhas and Hyderabad. Munawar now aims to sell her product to large local and international food brands operating in Pakistan’s major cities.

“Our target is to do business with National and Shan [Foods],” Munawar, nicknamed Nainsukh, told Arab News while standing inside her factory, which she recently acquired from a wedding lawn owner.

“We also target to collaborate with the brands on an international level like McDonald’s and Kababjees which are very much in demand right now in Pakistan,” she added.

McDonald’s is a major US multinational fast-food chain, while Kababjees is a Pakistani restaurant brand that has expanded beyond traditional barbecue into fried chicken and pizza.

Food manufacturers in Pakistan have been under pressure from rising input costs, driven by higher energy prices, climate-related disruptions to agricultural supply chains and inflation. Corporate taxes can also reach 40 percent, further squeezing margins for those in the business.

Munawar, who holds a master’s degree in medical physics, said RRF’s appeal lies in its ability to sharply reduce production costs by eliminating electricity and heavy machinery from the drying process.

“Ours is a manual technique in which you don’t have to add the electricity and machinery costs and that’s why the rates we offer are 50 percent cheaper than the market,” she added.

Tomatoes, a staple ingredient in Pakistani cooking and food processing, have become a symbol of food inflation in recent years, with prices swinging sharply between periods of glut and shortage.

“We have a time when tomato sales are very high like currently. We are receiving tomatoes at Rs7 per kilogram as these are high in supply and people are even throwing them,” she explained. “We buy tomatoes these days, make powder out of it and preserve it.”

When supplies tighten, prices can soar.

“Then there is a time when tomatoes go short in supply and are retailed at a price as high as Rs400 per kilogram,” she said.

“We then sell our tomato powder at the same price,” she added, referring to Rs100 per 80-gram packet.

For consumers, the powder has become a practical hedge against price volatility.

Inflation stood at 6.1 percent in November, with core inflation described by the State Bank of Pakistan as “relatively sticky.”

Ganga, a 45-year-old RRF worker who lives with her brothers, said the product has changed how households cope with seasonal shortages.

“In the off season, the tomato prices become so high that you can’t even buy a kilogram of it,” she said.

“Then we buy a packet of this tomato powder for Rs100 which lasts for four to five days.”

RRF’s production process is deliberately simple. Tomatoes are sliced by hand, dried in open spaces under the sun for four to six days depending on sunlight intensity and then ground using basic household-type machines.

The initiative received support after the devastating floods of 2022, which destroyed crops and livelihoods across southern Sindh.

Mahdi Hassan, a livelihood officer at the Sindh Rural Support Organization (SRSO), said RRF was backed through post-flood recovery programs implemented with Germany’s Malteser International.

“After the floods of 2022, there was a lot of destruction in Jhuddo because of which people’s livelihoods were greatly affected,” he said, adding that SRSO had supported around 24 similar initiatives in the area, mostly led by women, with about Rs30 million ($107,000) in funding.

Beyond livelihoods, RRF is also trying to reduce Pakistan’s reliance on imported food products.

“No company is producing this dried-tomato powder in Pakistan yet,” said Ahsan Khan, the company’s technical supervisor.

“What is available in the market is being imported ... We are trying to manufacture this dried tomato powder locally and give competitive rates to our buyers.”

During peak seasons, RRF sells up to four tons of tomato powder per month. Munawar said she expects that volume to rise, noting that entry into Karachi’s large food market could significantly boost revenues from last year’s Rs650,000 ($2,319).

“Last year we were in collaboration with Al-Noor Foods while now we have sent requests [business proposals] to National Foods and Shan Foods, who will become our customers after approving those requests,” she said.
RRF has also sent proposals to international brands such as McDonald’s.

“We would be targeting to double, triple our revenues this year if we get approvals from these brands,” she added.