Denmark to give Pakistan interest-free loans

ISLAMABAD: Pakistan and Denmark on Wednesday signed an inter-governmental framework agreement to enhance financial cooperation in the energy and water sector.

The agreement, signed by Secretary Ministry of Economic Affairs Muhammad Humair Karim and Danish Ambassador Lis Rosenholm, allowed for interest-free loans in renewable energy, energy efficiency, water supply and waste-water treatment sectors, said a press release issued here.

The ambassador also had a brief meeting with Minister for Economic Affairs Sardar Ayaz Sadiq in his office. He told the ambassador that Pakistan and Denmark enjoyed a friendly and cordial relationship, and there was a lot of potential to enhance the relationship between both the nations.

He further stated that the efforts to revive the nbilateral economic and development cooperation paid off with Denmark agreeing to provide on-budget support to the government of Pakistan through the Inter-Governmental Framework Agreement. The focus on Waste Water Treatment Projects in Faisalabad and Lahore was immensely appreciated.

The federal cabinet accorded approval to the signing of the framework agreement with Denmark on August 4 this year. This framework agreement is a breakthrough in the bilateral and economic relations between Pakistan and Denmark, which have been partners in successful development cooperation since 1969; however, there had been no active on-budget financial support extended by Denmark since 2017. The efforts to revive bilateral economic and development cooperation between the two countries paid off with Denmark agreeing to provide on-budget support to Government of Pakistan through this Inter-Governmental Framework Agreement.

This Framework Agreement would act as an umbrella agreement for potential development sector projects emanating from it, mainly in the sectors of renewable energy, energy efficiency, water supply and waste-water treatment sectors. Each project will have its separate financing agreement, which will be negotiated with the Danish side case by case in consultation with all the stakeholders. Currently, waste water treatment projects in Faisalabad and Lahore are in the pipeline, which are to be negotiated under the ambit of this framework agreement. This agreement offers the Danida Sustainable Infrastructure Finance (DSIF) Facility by the Danish side, which would provide interest free, but tied loans up to but not limited to over €100 million, and would also facilitate transfer of technology and know-how from Denmark to Pakistan.

The interest-free loans after signing this agreement would have a 35% concessional element covering the interest on the loan, export premium, bank margin and an upfront grant if these expenses do not arrive at 35% of the contract amount.

Secretary Economic Affairs Division thanked the ambassador, the Danish International Development Agency (DANIDA) and the Danish government for their support to Pakistan.