The Asian Development Bank (ADB) on Thursday indicated providing $2.5 billion in additional loans to Pakistan, including $1.5 billion before end of year, but the government will have to secure a good economic health certificate from the International Monetary Fund (IMF).
“The ADB indicated the additional support of $2.5 billion for the next fiscal year, from which $1.5 billion to $2 billion can be available in the ongoing calendar year”, according to a statement issued by the Ministry of Finance.
The statement was issued after a meeting between Minister of State for Finance and Revenue Dr Aisha Ghous Pasha and the Country Director of the ADB, Yong Ye.
The finance ministry insiders said the ADB indicated that it could provide $1.5 billion under the Counter Cyclical Finance Facility and another roughly $400 million under energy sector policy loans.
However, it will be an uphill task to secure the $1.5 billion facility on priority due to the requirements and a slow-moving bureaucracy in the Ministry of Economic Affairs that has so far failed to even write a formal letter to the ADB for availing the loan.
The EAD secretary has not been able to focus on the disbursements of foreign loans that are now falling behind the goals for the third and the fourth quarters, the sources said.
The indicated $2.5 billion additional financing is said to be over and above the regular $2 billion annual envelope in shape of policy and project loans.
Pakistan is currently in dire need of foreign loans due to depleting foreign exchange reserves coupled with growing repayments and import financing requirements. The rupee-dollar parity slipped the lowest ever level of Rs191.77 to a dollar on Thursday amid uncertainty in the market over the fate of the IMF programme.
In order to get the ADB additional financing, Pakistan has to meet many requirements for qualifying for the facility that has been designed to help the member countries to cope with the challenges posed by the Covid-19 pandemic
The ADB board has already approved the Counter Cyclical Finance Facility on May 3 and Pakistan’s share includes a mix of both the concessional and commercial facility. However, the $1.5 billion loan approval by the ADB board will require that Pakistan’s debt burden is sustainable and it is not following imprudent fiscal policies – the two requirements that will need hectic efforts to meet.
Insiders said that the negative impact of the Russia-Ukraine war on Pakistan’s economy will also be a factor in deciding the loan approval. The government will also require submitting a sound macroeconomic plan to the ADB board, which means departure from the existing expansionary fiscal policies and withdrawal of the fuel subsidies.
The government will also have to secure an assessment letter from the IMF, which should validate that the country’s economic policies were on the right track.
However, it will not be an easy task to get an assessment letter from the IMF until Islamabad addresses the outstanding issues like withdrawal of fuel subsidies and tax amnesty scheme.
Pakistan and the IMF are scheduled to hold policy level talks for the revival of the IMF programme on May 18 in Doha.
Due to deteriorating external sector situation and resultant reduction in the foreign exchange reserves, China has delayed the processing of $2.3 billion commercial loans and has placed a condition that Islamabad cannot effectively utilise the money.
The finance ministry handout stated that Dr Aisha acknowledged that ADB had always assisted in pursuance of reform and development agenda in the country.
She said that currently Pakistan was facing various fiscal and monetary challenges but the present government was keenly working on various structural reform measures to bring back the economy on an inclusive and sustainable growth path, according to the finance ministry.
The ADB country director briefed the minister of state on ADB’s portfolio and the country strategy. It was shared that ADB was devoted to providing the support for the reform agenda of SOEs governance and regulations, women inclusive finance sector development and PPP frameworks.