The World Bank has canceled a $500–600 million budget support loan to Pakistan under the Affordable and Clean Energy (PACE-II) program due to Islamabad’s failure to meet key conditions, including revising power purchase agreements with China-Pakistan Economic Corridor (CPEC) power plants. The bank also announced that it would not approve any new budget support loans for the current fiscal year, as Pakistan has reached its loan quota.
This decision has disrupted Pakistan’s fiscal plans, which relied on $2 billion in loans from the World Bank. The cancellation is attributed to delays in renegotiating contracts with Independent Power Producers (IPPs), inefficiencies in power distribution companies, and an unresolved circular debt that now exceeds Rs2.393 trillion. Previous reforms under PACE-I, such as encouraging private sector involvement in the energy sector, have also failed to materialize.
Although Pakistan renegotiated 22 energy contracts, the country has seen little reduction in electricity prices, which remain high at Rs65–70 per unit. The World Bank cited “slower-than-expected progress” as the reason for altering its support strategy, shifting focus to direct financing for projects like the Dasu Hydropower Project and efforts to improve distribution efficiency.
