ISLAMABAD: Pakistan has requested the Asian Development Bank (ADB) to double loan size of the energy sector reforms programme to $800 million amid the country’s growing dependence on foreign lenders to meet its budgetary needs.
Finance Minister Ishaq Dar made the request to ADB Country Director Werner Liepach during a meeting held on Monday, officials said.
ADB hints at $6b assistance to Pakistan over three years
The meeting had been called to review the Manila-based lending agency’s proposed $5.9 billion loan package under the three-year (2017-19) Country Operations Business Plan, said officials of the Ministry of Finance.
Of the original proposed loan size of $5.9 billion, $2 billion was in the shape of budget financing. However, the government desires that programme lending should be increased to $2.4 billion, as it seeks an additional $400 million in the name of energy sector reforms.
This will also increase the share of budget financing to over 40% of the proposed $5.9 billion loan package.
Originally, the ADB proposed $400 million for the energy sector programme in two equal tranches to be disbursed in 2017 and 2018. Dar insisted that instead of the $200 million tranche, the size should be doubled to $400 million, said the officials. The ADB country chief agreed to the government’s request.
The decision to increase the budgetary financing would further cut foreign loans for infrastructure projects despite a huge requirement for upgrading and expansion.
Since 2014, the ADB has approved $1.2 billion in budgetary support in return for commitments to cut electricity subsidies, fast track privatisation and run the power sector on a commercial basis.
Pakistan has failed to meet these conditions except for slashing power subsidies and yet the ADB appears generous in extending the energy sector loans. By the end of June this year, the country’s total external debt stood alarmingly high at $73 billion, according to the State Bank of Pakistan. Owing to declining exports, stagnant foreign investment and a slowdown in foreign remittances, the country may face problems in servicing this debt without taking fresh loans.
ADB to lend Pakistan $810m to improve power infrastructure
The IMF has projected that Pakistan’s external financing needs would grow to $11.5 billion in the current fiscal year, then rise to $13 billion in 2017-18 and $15 billion in 2018-19.
Against the $2.8 billion expensive loans based on market interest rates under the previous 2016-18 plan, the ADB originally proposed to give $4.6 billion in expensive loans over the next three years, up 64%. The share of expensive loans could now increase to $5.1 billion after making fresh adjustments.
The ADB one of the two largest lenders to the country could release on average $2 billion a year, which is far higher than the annual assistance Pakistan is currently receiving.
Purpose of funds
The three-year package includes financing for the Peshawar rapid bus transit service and for creating the Pakistan National Disaster Management Fund. The fund is expected to receive $750 million in three equal tranches.
It will be operationalised through a broad-based stakeholder General Body, according to a statement issued by the finance ministry on Tuesday. It claimed that the ADB funding would be $1 billion with Pakistan’s share being $250 million.
The funding will come in four equal tranches of $250 million each year. The fourth installment may come in 2020, which is beyond the period of the new partnership strategy. Australia, Belgium, Norway and Japan are also cited as prospective donors.
ADB approves $197m loan
For connectivity between Central Asia and South Asia, the ADB has indicated a loan of $850 million under its Central Asia Regional Economic Cooperation (Carec) initiative. It intends to finance three projects for the development of roads and railways to connect the two regions.
Carec is aimed at enhancing connectivity between the two regions. A meeting of the Carec stakeholders, representatives from relevant countries and development partners is slated for October 2016 in Islamabad.
Courtesy : Express Tribune