World Bank Pakistan loan: $1.7bn sought despite breaches

Pakistan plans to draw the full $1.7 billion World Bank Pakistan loan to widen the tax base and bring spending in line with the Constitution, even though the lender has twice rated the approved $600 million tranche only moderately satisfactory and the government has itself broken one of the package’s conditions twice. The loan is being taken in the name of Public Resource for Inclusive Development, under the World Bank’s Multiphase Programmatic Approach.

The package is meant to widen the tax base and bring public spending in line with the Constitution. Its beneficiaries will be the federal government and all four provincial governments, according to World Bank documents. Officials say there is no plan to walk away from the package, despite slow progress on the first phase.

World Bank Pakistan loan faces questions over tariff breaches

One condition is that Pakistan must carry out its National Tariff Policy. The government broke it in June by raising taxes on imports, and again last month, when the ECC approved extra customs duty to protect a tyre maker. The Express Tribune reported that the World Bank’s last two implementation status reports on the $600 million loan both rated the programme moderately satisfactory.

The $1.7 billion package has four overlapping phases. The first, worth $700 million, was approved last year, with $600 million going to the federal government in December. The bank’s board approved the operation on December 19, 2025, but it only became effective on May 14, 2026, and an advance of $164.5 million was paid out on June 29, 2026.

In April, the bank rated the federal component moderately satisfactory because the operation had been approved but was not yet effective. Its second report, released last month, kept the rating while noting some improvements. A $200 million tranche is now being approved for the Khyber-Pakhtunkhwa government.

Sindh has taken a $100 million loan in the first phase, as a test of whether provincial reforms can work under the National Fiscal Pact, including steps to raise farm and property taxes. Balochistan and Punjab will get loans in the third and fourth phases.

What the fiscal pact requires

Under the $600 million loan, the federal government promised to carry out the National Fiscal Pact, which is meant to end federal funding for projects and subjects that belong to the provinces after the 18th Amendment. Yet it keeps breaking the pact: in June this year, it approved Rs87 billion for a Sindh project.

The bank has set three main goals for the $1.7 billion package: raising tax revenue, improving how public money is spent, and strengthening the data used for fiscal and service-delivery decisions.

On tax, the bank will back work on the equity, efficiency and revenue effects of proposed reforms, including raising money from provincial sources that are barely used, taxing farm income properly through better data systems, and strengthening property tax by digitising land records and standardising valuations.

On spending, the bank will fund reviews to simplify government processes and cut federal spending on functions the Constitution assigns to the provinces. It will also back reform of the electricity subsidy policy, including a welfare-based subsidy for homes, and better tracking of public money through the Integrated Financial Management Information System and e-procurement.

On data, the bank will fund work to improve the Pakistan Bureau of Statistics and set up a National Data and Statistics Hub so data can flow between federal and provincial bureaus.

Why the loan matters for Pakistan’s economy

The bank’s documents say faster reform is essential for higher growth, enough jobs for a fast-growing working-age population, and reversing the recent rise in poverty. The reforms listed include trade liberalisation, a new National Finance Commission Award, power sector restructuring, private participation in state-owned enterprises, and stronger social services. The tax base is narrow: the salaried class alone paid Rs193 billion in tax, while real estate paid Rs42 billion.

The debt picture adds pressure. Bangladesh’s external debt has nearly tripled to $113 billion, according to World Bank data, a warning from the region about how fast borrowing can pile up. Pakistan’s own trade gap is wide too: the trade deficit reached $14.6 billion in July-October 2026, up 16 per cent on the year before. A trade finance gap is also hitting exporters, and the loan package includes steps to improve access to credit and cut its cost.

For now, the government intends to draw the full $1.7 billion. Whether the money delivers reform will depend on whether the tariff and fiscal pact conditions are kept this time.

Frequently asked questions

How much is the World Bank loan to Pakistan?

The package is worth $1.7 billion in total, taken in several tranches. The first phase is $700 million, of which $600 million went to the federal government and $100 million to Sindh.

Why did the World Bank rate the loan moderately satisfactory?

Its last two implementation reports gave that rating. In April, the operation had been approved but was not yet effective. The second report, last month, kept the rating while noting some improvements.

How did Pakistan breach the loan conditions?

The government broke the National Tariff Policy condition twice: by raising import taxes in June, and by approving extra customs duty last month to protect a tyre maker.

What is the National Fiscal Pact?

It is a deal to end federal funding for projects and subjects that belong to the provinces after the 18th Amendment, and to strengthen provincial taxes on farm income and property.

Who gets the next tranche?

The next $200 million tranche is being approved for the Khyber-Pakhtunkhwa government. Balochistan and Punjab will receive loans in the third and fourth phases.