ISLAMABAD: Pakistan and the Asian Development Bank (ADB) have recently sealed six loan agreements totaling $1.2 billion, a third of which will be allocated for budgetary assistance. This move comes following a resolution with the International Monetary Fund (IMF), reviving strained financial channels.

The signing of the loan pacts occurred between the Economic Affairs Division (EAD) and the ADB’s local office. The EAD spokesperson confirmed the completion of the $1.2 billion loan agreements with the ADB. From this sum, the ADB will contribute $400 million for budget support across two distinct deals. Budgetary funding had experienced a hiatus due to strained relations with the IMF, affecting lending arrangements with two other multilateral lenders. Following a staff-level agreement in the past month, the IMF is set to approve a $700 million tranche on January 11th.

The ADB is anticipated to disburse $300 million under the Domestic Resource Mobilisation program imminently, while an additional $100 million for budget support under the Women Financial Inclusion program is slated for disbursement this week, subject to procedural fulfillment. These contributions aim to bolster the central bank’s reserves to approximately $7.5 billion.

Notably, official inflows in the initial five months of this fiscal year have been limited, constituting only $6.4 billion, a quarter of the annual financing needs. Moreover, the rollovers of Saudi Arabia’s $3 billion debt stand apart from these disbursements.

The ADB sanctioned these loans recently, signing agreements three days prior. This action follows the ADB’s declaration of Pakistan’s debt sustainability, contrary to Finance Minister Dr. Shamshad Akhtar’s views on the matter.

Despite the challenges posed by substantial gross financing needs, the ADB remains optimistic about Pakistan’s debt sustainability, contingent on the implementation of robust reform policies.

Furthermore, the ADB emphasized Pakistan’s fiscal consolidation plans, including revenue enhancement efforts and energy subsidy management, alongside loan agreements targeting sectors like power transmission, workforce readiness in Punjab, food security in Khyber-Pakhtunkhwa, and secondary education in Sindh.

The current IMF program is deemed pivotal by the ADB in addressing fiscal challenges, ensuring debt sustainability, and unlocking significant external financing during the political transition. The fiscal year’s budget aims for a primary surplus of 0.4% of GDP and a 1.4% consolidation.

Additionally, Pakistan has secured a $300 million loan to fortify tax administration and revenue collection. This loan encompasses a 15-year term with a three-year grace period and an interest rate set according to ADB’s Flexible Loan Product, which currently translates to an interest cost exceeding 6%. The 15-year tenure and the relatively higher interest rate signify a deviation from the ADB’s previous financing terms for Pakistan.

Published in The Daily National Courier, December, 21 2023

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