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December 10, 2019

Pakistan signs $1.3bln loan accord with ADB to shore up finances


December 10, 2019

ISLAMABAD: Government on Monday signed a $1.3 billion worth of loan agreement with Asian Development Bank (ADB) for economic stabilisation program and energy sector reforms.

The loan agreements – $1 billion for reforms support and $300 million for energy sector – were signed Economic Affairs Division Secretary by Pervaiz Abbas and ADB Country Director Xiaohong Yang. Minister for Economic Affairs Hammad Azhar witnessed the loan signing ceremony.

Azhar said ADB’s policy-based lending would strengthen the foreign exchange reserves and provide fiscal space to the government for implementing its reforms agenda and boosting economic activities in the country.

“The provision of program lending by Asian Development Bank is indicative of government successful policies for macroeconomic stability and reforms,” he said in an official statement.

In August, ADB approved a $500 million worth of policy-based loan for Pakistan after a gap of one and half years as IMF-backed reforms in the country persuaded the lender to okay a part of $2 billion committed for the current fiscal year of 2019/20.

In July, Pakistan agreed to an International Monetary Fund’s (IMF) loan program of $6 billion to introduce structural reforms in the economy imperiled by current account deficit.

This was the country’s 13th IMF loan since 1980s and one that started following another one that completed successfully in 2016.

ADB committed to provide $1 billion for economic stabilisation program under special policy-based loan facility. This program aims at to improve exchange rate management, strengthen public financial management to mobilise more revenues, restore allocative efficiency of scarce public resources, address the power sector pricing issues, and reduce the social impacts of macroeconomic stability measures by improved targeting and transparency of existing social protection programs.

Yang said ADB is one of the leading development partners of Pakistan.

“ADB fully supports the government's development vision and policies,” she said. “ADB is providing its support to the government for policy reforms and project financing in the key priority areas such as energy, road, social sector, water and irrigation and urban services.”

Yang said ADB is committed to provide wide-range financing options to strengthen Pakistan’s economy and reduce the risk of external economic shocks. She also reiterated ADB’s strong commitment to further strengthen and expand its partnership with Pakistan.

IMF’s facility, as expected, turned on stagnant stream of foreign inflows with other financial institutions contributing to the funding. IMF expected a huge $38 billion of inflows from bilateral and multilateral creditors over its program period of three years.

ADB’s latest $300 million is allocated to energy sector reforms and financial sustainability program. It will address issues regarding energy shortfalls, technical lacunas and policy-related shortcomings in the country’s energy sector. The program intends to help to secure financial sustainability by controlling new accumulation of circular debt, strengthen governance by rationalising competitive market roadmap, separation of policy and regulatory functions in hydrocarbons sector and appointment of appellate tribunals, implementation of multi-year tariffs and unbundling of gas sector.

Further, it has an objective to reinforce infrastructure improvements through integrated planning to facilitate public and private sector investment across the energy supply chain.

Foreign lenders have linked economic growth in the country with revamping of cash-bleeding state-owned power generation and distribution sectors.

“Addressing structural weaknesses in the energy sector and improving the governance of state-owned enterprises will ensure efficiency and better services, thus boosting economic activity,” IMF said in a report.