Wednesday, April 01, 2009

World Bank Provides Pakistan With $500M Loan

Sources: Pakistan Gets $500 Million Loan From World Bank, The Wall Street Journal; World Bank Approves $500 Million Loan for Pakistan, The Times of India; Pakistan Welcomes $500M World Bank Loan, Financial Times; International Development Association,

On Friday, the Pakistani government welcomed a $500 million interest free loan from the World Bank’s International Development Association (IDA). Established in 1960, the IDA is the part of the World Bank that helps the world’s poorest countries. The loan to Pakistan is interest-free for 35 years.

Pakistan hopes that the loan will help stabilize the economy in the face of political and economic turmoil and investor uncertainty. Specifically, the loan will support the Poverty Reduction and Economic Support Operation designed to promote stability, promote competitiveness, and protect the poor through targeted social programs.

According to the World Bank, Pakistan has experienced severe economic turmoil in the past year and is currently confronting a very difficult macroeconomic situation. The rise in international food and oil prices inflated Pakistan’s import bill and the subsequent global financial crisis dampened demand for Pakistan’s exports. In addition, violence and political turmoil has eroded investor confidence which, together with macroeconomic troubles, led to capital outflows.

In addition to this recent World Bank loan, Pakistan has also received a much larger $7.6 billion loan from the International Monetary Fund.

1. Pakistan had to meet certain requirements in order to receive the money. Do you think that requirements should be attached to loan disbursements by the World Bank?

2. Should the World Bank and the IMF monitor the use of the loan money given to Pakistan? What if the money is not used in the way that the Bretton Woods institutions expected?

3. Should there be a cap on the amount of loans that states can receive from both the World Bank and the IMF? If so, should it depend on the size of the state, the size of its economy, etc.?

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