Pakistan and the World Bank

Soon after the establishment of the Bretton Woods institutions, colonial powers from Europe began leaving their colonies in Asia and Africa. Dozens of new countries won their independence from colonial rule in that period. The largest among these were India and Pakistan. Like the war-destroyed Europe, they also needed foreign finance to build their economies. Accordingly, they became members of both the IMF and the IBRD. However, it didn’t take long to discover that the South Asian nations couldn’t borrow on market terms as Europe could. They needed “concessional funds.” To provide them with this kind of resource, a new institution was needed. This led to the creation of the International Development Agency, the IDA, in 1961. This institution was given money by rich nations to on-lend on very concessional terms to poor countries. Another institution, the International Finance Corporation was added to the IBRD cluster. The IFC raised finance from the capital markets and lent it to private enterprises in the developing world. The addition of these institutions led to the dropping of the IBRD nomenclature. This institutional collection came to be called the World Bank Group. The success of the World Bank Group led to the creation of a number of regional banks, including the Asian Development Bank (ADB) based in Manila and the Inter-American Bank based Washington DC.

Pakistan is one of the largest recipients of aid from the World Bank. Over the last five years it has received $10.6 billion. The largest amount was provided in 2018 when it received $2.8 billion. The least amount of lending was in 2017 when the country was given $1.2 billion. For the last two decades, the Bank has begun to place emphasis on the alleviation of poverty. It does this by providing both “program loans” and project finance. The former are so called since the recipient is encouraged to implement programs that aim at helping the poor. The most recent example of this is the $200 million credit provided to Pakistan to deal with the problem of Covid-19 which is hurting the poor more than the better off segments of the society. The World Bank has played no role in CPEC.

What came to be called the Bretton Woods system was founded in 1944, three years before Pakistan was born. It was conceived at a multinational conference held at a small resort in New Hampshire state in the northeast of the United States. The conference was attended by 730 delegates, representing 44 allied nations that had fought together to defeat Hitler’s Germany. That an American site was chosen for the conclave was in recognition of the fact that the United States was the real winner in the recently concluded Second World War. That said, John Maynard Keynes, the British economist, was the main intellectual force behind the Bretton Woods effort.

For the last two decades, the Bank has begun to place emphasis on the alleviation of poverty.