AIIB approves $500m as co-financing

ISLAMABAD: The Asian Infrastructure Investment Bank (AIIB) approved $500 million (Rs110 billion) in its Board of Directors (BOD) meeting on Wednesday, as co-financing of ADB-funded Building Resilience with Active Countercyclical Expenditure (BRACE) programme.

“The Board of Asian Infrastructure Investment Bank (AIIB) has today approved USD 500 million as co-financing of Asian Development Bank (ADB) funded BRACE programme for Pakistan. These funds will be received by the State Bank of Pakistan within November 2022,” Federal Minister for Finance Ishaq Dar announced in a tweet on Wednesday.

The ADB had approved and disbursed $1.5 billion under the BRACE programme that helped Islamabad to jack up its foreign currency reserves up to $8.9 billion. Despite the revival of IMF programme and getting $1 billion tranche under the Extended Fund Facility, the foreign currency reserves held by the SBP stood at $8.9 billion against $10.8 billion in April last, when the PDM led government assumed power after ousting Imran Khan through a no-confidence move.

The Government of Pakistan had approved the Concept Clearance Committee (CCC) in its meeting held on 14-09-2022 on the BRACE programme with funding amounting to $1.5 billion from the Asian Development Bank.

Pakistan’s economy was poised to rebound from the Covid-19 pandemic but before it could completely recover from the shocks of pandemic, it has been subjected to cumulative shocks from sharply rising international commodity prices due to the Russia-Ukraine war.

The Planning Commission’s Central Development Working Party (CDWP), which approved the concept paper for getting $500 million as co-financing from the AIIB on ADB’S BRACE programme, stated that not only is the high inflation, currency depreciation, depleting foreign exchange reserves, rising food insecurity, and poverty impacting millions of Pakistanis, tight capital market conditions have also restricted the government’s access to financial resources.

The situation has been further exacerbated by massive flooding in various parts of the country, augmenting immediate financial needs. To mitigate the adverse impact of cumulative exogenous shocks, especially to poor and vulnerable, the government’s counter cyclical measures amount to nearly $2.4 billion and ADB is providing support to partially fund these countercyclical expenditures as a general budget support under the BRACE programme.

Subsequent to the approval of BRACE programme by the ADB Board on 21st October 2022, the AIIB agreed to co-finance the BRACE programme with the ADB. The AIIB will provide US$500 million as a budgetary support loan in order to create fiscal space needed to finance the government’s countercyclical measures amounting to nearly $2.4 billion.

Pakistan is already facing a liquidity crunch and needs support from development partners to meet such expenditures. The Ministry of Finance informed the Planning Commission of the AIIB’s intent to co-finance the programme vide its letter, dated 27th October 2022.

The loan negotiations were held on 28th October 2022, in which the Planning Commission also participated in it. The AIIB shall lend the amount based on its standard terms and conditions, as loan maturity period will be 7 years, including a 3-year grace period.