ADB’s loans, grants for budget financing decline in 2008-2017

KARACHI: Pakistan’s loans and grants for budget financing from the Asian Development Bank (ADB) has significantly declined during the past one decade despite the country’s strong need for poverty-based development funds, the bank said on Tuesday.

The Manila-based lender, in a report, said Pakistan has had the greatest number of policy-based lending (PBL) operations, but the share of “this type of loan in the overall country program has declined significantly in recent years from 60 percent in 2000–2007, to 27 percent over the evaluation period”. PBL provides developing member countries with fast-disbursing budget support while, at the same time, creating an opportunity for the ADB to influence policy reforms to boost growth and poverty reduction.

ADB said Pakistan has a strong poverty-based need for development financing, although it couldn’t harness foreign loans and grants. The bank said the country is among the four countries that accounted for 65 percent of all PBL approvals by value of $27 billion in 2008-2017, up from $18 billion in the previous decade. Other countries included Indonesia, the Philippines and Vietnam. “Of the four largest recipients of PBL, only Pakistan has a strong poverty-based need for development financing, yet PBL support for Pakistan has recently declined,” the bank said in a corporate evaluation report.

ADB said programs in Pakistan were frequently restructured, terminated, or partly continued as new programs. “This led to many adjustments in policy actions later in a program which almost always softened reform conditions or pushed them into the future,” the bank said in PBL 2008-2017: Performance, results and issues of design. “In many cases, reforms were backloaded, even though there are risks associated with deferring meaningful reforms.”

ADB said PBL use in Pakistan, where results were especially problematic for a variety of reasons, fell significantly over the evaluation period.

The weight of Pakistan’s poorly performing program in the total portfolio fell over the period, turning out to be a factor that helped the development performance of PBL, measured by project success rates, double over 2008-2017 to 80 percent from 43 percent.

“A reduction in the number of Pakistan operations in the post 2008 portfolio has helped raise the overall success rate of PBL in the more recent evaluation period,” ADB said.

ADB said support for energy sector reforms in Pakistan resulted in incremental improvements in institutional architecture, roles, and capacity, but the twin reforms of unbundling and privatisation were not completed. Pakistan’s energy portfolio has been ADB’s largest energy portfolio for any country, with approvals of more than seven billion dollars since 2005.

“Food and energy subsidies are still problematic and being reformed,” the bank said. “The government has vacillated on policies for privatising state-owned enterprises (SOEs). The focus now is on revamping loss-making SOEs, with the possible goal of privatising them at a later point.” ADB’s accelerating economic transformation program 2008 responded to an imminent balance of payments crisis with a programmatic PBL operation that consisted of four subprograms with greater depth of reform in each successive subprogram.

The second subprogram, approved in 2009, was designed to help address the impact of higher oil and food prices, but the government appeared to lose interest in the reform agenda once the crisis had subsided. In 2010, Pakistan fell off-track with the IMF, and the program was truncated, “to the detriment of eventual reform implementation”. “A lesson learned from this experience is that it is difficult to pursue medium-term policy reforms in a country struggling to cope with a short-term crisis,” the bank said.