ADB seeks capital market’s role in infrastructure development

ISLAMABAD: Asian Development Bank (ADB) on Monday sought an increased participation of capital market and non-banking financial institutions in financing of infrastructure projects in Pakistan.

“Project financing in Pakistan is only offered by a few commercial banks, with little or no role of capital markets or other financial institutions,” ADB Country Director Xiaohong Yang said. “This leads to lack of sufficient financial depth and backing in the country’s domestic credit markets to accommodate the long-gestation of infrastructure projects.”

Yang was addressing a three-day consultative workshop on ‘ADB Country Programming and Public-Private Partnerships (PPP) in Pakistan’, in Bhurban. ADB Country Director for Pakistan underscored the bank’s continued commitment to support the country to achieve its key development goals outlined in the ADB-Pakistan country partnership strategy. She urged for a closer coordination and consultation between ADB and partners to ensure for better and smarter investment programs to better respond to Pakistan’s evolving priorities.

“We are in short supply of well prepared and bankable PPPs pipeline,” she added. “The private sector has responded positively, and I can feel the positive vibes from the success of PPP modalities in Sindh and Punjab. Yet, more need to be done to create an effective fiscal risk vetting and management regime for greater private sector partnership in the public sector.”

Manila-based lender and government agreed to chart new ways to pursue more robust and inclusive ADB’s investments in Pakistan by scaling up PPPs to tap the private sector resources and meet the country’s rising infrastructure development needs. Pakistan’s public investment in infrastructure has historically fallen short of the estimated annual investment need of 7.6 percent of the country’s gross domestic product.

The country needs to invest over $20 billion per year on the critical infrastructures. The current surge in infrastructure spending reaching more than 67 percent of the total development budget in the public sector requires effective fiscal consolidation measures and strategies to reduce the deficit and achieve higher level of efficiencies as PPPs carry fiscal risks that need to be mitigated.

The outstanding infrastructure financing from local commercial banks in 2016 was only about $4 billion with 65 percent of the local bank’s lending going into energy projects. ADB is already providing $200 million loans ($100 million each) for projects supporting PPPs in Punjab and Sindh.

The investments are to augment and assist the provincial government’s efforts to increase the commercial viability of projects, as well as mobilise more private sector participation in PPPs.

Jahanzeb Khan, chairman of Planning and Development Board, Punjab and Agha Waqar Javed, head of PPP Cell and Member PPP/Planning and Development Board of Punjab reiterated government’s commitment to work closely with ADB in delivering high quality development projects and programs.

They also briefed on reforms to improve regulatory and policy frameworks conducted by the government intended to encourage a greater private sector participation in the public-sector development programs with the federal and provincial governments.

The event is attended by over 100 delegates of senior government officials, leading economists, planners from federal and four provincial governments and ADB key staff. Among others, it was to discuss the development opportunities and pipeline of projects as part of the ADB’s country operation business plan for the period of 2019 to 2021.