The Asian Development Bank (ADB) has approved use of 105 million dollar savings from eight Asian Development Fund (ADF) loans to address the earthquake damages in NWFP and AJK.
Official sources told Business Recorder that approved amount was identified as loan saving from eight ongoing projects by ADB's Pakistan Resident Mission (PRM). Now, these savings would be channelled through the Decentralisation Support Programme (DSP), they added.
Last month, government sought ADB approval for use of the amount already saved from different ongoing and completed projects, which amount for 105 million dollars.
Of these projects, some have already been completed and their savings were no longer necessary for their accomplishment. These savings would have been cancelled if it were not used for some other purposes. Its utilisation has been discussed with the government of Pakistan, which wanted ADB to adopt a quick-disbursing approach, they added.
Eight loans savings are: 14.7 million dollars from Middle School Project; 17.5 million dollars from Pehur High-Level Canal; 10.9 million dollars from Technical Education Project; 7.0 million dollars from Drought Impact Mitigation and Recovery; 45 million dollars from National Drainage Sector project; Second Girl High School for which the proposed ADF saving is 5.3 million dollars; Women's Health Project 2.5 million dollars and Sindh Rural Development Project with saving of 2.5 million dollars.
Apart from these eight projects, sources said that the PRM was also reviewing other seven ongoing loans in the earthquake-affected areas to see whether these can be redesigned to address earthquake damage more effectively.
The Preliminary Damage and Need Assessment (PDNA) of World Bank and Asian Development Bank (ADB) released last month also says, the cost of effort will be at about 3.5 billion dollars for the reconstruction alone, which is more than 3 percent of Pakistan's GDP.
However, ADB has shown concern on the provision of assistance for relief, rehabilitation, and reconstruction, which thus result in a substantial increase in public sector expenditure over the next 3-5 years and will have an adverse effect on the government's budgetary position, fiscal deficit, and external current account deficit.
About the impact of the quake on economy, the bank says that it will have limited adverse effects on GDP growth, because the affected districts do not contain the country's main centres of industry, agriculture, or services. However, there may be short-term labour shortages, as many migrant workers and labourers from AJK, employed in other cities.
There may, therefore, be some adverse impact on GDP growth, which may decline by up to 0.5 percent from the earlier projected growth rate of 6.5 percent in FY 2006. However, in FY 2007 and beyond, momentum in reconstruction activities in the affected districts could have a positive impact on aggregate demand and growth.
The bank also proposed, to the extent that new investment in this regard will be concentrated largely on rebuilding damaged or destroyed assets, instead of building new assets, the impact on growth may not be significant.
In addition to the immediate expenditure on relief operations and compensation for death and injuries, other items that will lead to increased expenditure include cash grants for the reconstruction of housing, cash for work programmes, and establishment of temporary facilities to replace damaged schools, hospitals, courts, and civil administration infrastructure.
Nevertheless, the increased expenditure, together with anticipated loss of tax revenues in the affected districts, and a possible initial slow-down in economic activity is expected to result in the fiscal deficit target of 3.8 percent of GDP set by the government for FY2006 being exceeded.
The trade account and the balance of payments (BOP) may be also be affected because of increases in imports of food, relief goods including tents, medicines and medical equipment, heavy equipment, and fuel and because of international shipping, transportation, and other logistical costs.
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