Pakistan receives $500 million as ADB bets on economic recovery

KARACHI: Pakistan has received $500 million in loan from the Asian Development Bank (ADB) as the policy-based lending from the lender resumed after having remained suspended for two years due to ‘extremely high macroeconomic imbalances’, a minister said on Saturday.

Minister for Economic Affairs Hammad Azhar said the first tranche of $500 million has been received from the ADB. Manila-based lender committed a total of $2 billion, for the current fiscal year, in policy-based lending to Pakistan that agreed to a $6 billion loan of the International Monetary Fund (IMF) last month.

“The Asian Development Bank has revived its program based financing for Pakistan that was suspended 2 years ago in the last government’s term due to extremely high macroeconomic imbalances that had arisen at that time,” Azhar wrote in his tweet.

The policy-based loan would support the government’s reforms to improve trade competitiveness and exports as a defense against external shocks and to help finance the country’s trade deficit.

ADB also approved a $750,000 technical assistance package to support the preparation and implementation of the program.

Another $500 million in the second tranche is soon expected to arrive for the power projects.

The IMF’s bailout loan, which is the 13th one since 1980s, was agreed to avert the balance of payment crisis with foreign exchange reserves having plummeted to the level sufficient to cover less than two months of import bills.

The country is expected to receive $38 billion from bilateral and multilateral creditors over the extended fund facility period of three years as lenders pose trust on IMF’s program that aims at introducing structural reforms to address external account balances and expand the tax base, which is one of the lowest in the region.

Only 2.5 million people file tax returns in the country with over 200 million population.

“This will add to boosting our forex reserves,” the minister for economic affairs said. Pakistan’s economy slipped into adverse economic imbalances when the present government took the helm of affairs.

The growth fell to 3.3 percent in the last fiscal year of 2018/19 from a decade high of 5.5 percent in the preceding fiscal year. But, current account deficit widened to 6.3 percent of GDP or $18 billion during the fiscal year of 2017/18, putting pressure on rupee. The local currency lost more than a quarter of its value against the dollar last year.

The present administration managed to slash the current account deficit to 4.6 percent of GDP in the last fiscal year following foreign inflows from bilateral sources. Growth is, however, still expected to remain around 2.4 percent in the current fiscal year.

Inflation is lurking near double digit figure with the government introducing measures to contain demand.

IMF projected consumer inflation to reach 13 percent in the current fiscal year from 7.3 percent in the previous fiscal year.