ISLAMABAD: The Asian Development Bank (ADB) has identified several risks to “Countercyclical Support Facility Loans For Islamic Republic of Pakistan: Building Resilience with Active Countercyclical Expenditures Programme” worth $1.5 billion including prolonged economic slowdown and political tensions and compounded crises, including the recent floods, strain government capacity for timely implementation of its programmes.
The project documents revealed that Pakistan meets all the criteria required to access ADB’s countercyclical support facility, which includes an adverse impact of exogenous shocks, a pro-poor CDEP, public debt levels maintained at sustainable levels, and ongoing implementation of structural reforms.
However, major risk included the crisis continues beyond projected timeframes, resulting in increased hardship, employment and income losses, and poverty.
However, as mitigating measures, the government has set up a dedicated institutional framework for monitoring and responding to the crisis with appropriate countermeasures as it evolves. Monitoring and evaluation of the ADB is embedded in the government’s institutional coordination mechanism.
ADB approves $1.5bn financing for Pakistan amid floods, supply-chain disruptions
The ADB and the government will be jointly monitoring the program and its impact. The ADB will also work with the International Monetary Fund and other development partners to support the government as the situation evolves.
Another risk is compounded crises, including the recent floods, strain government capacity for timely implementation of its programs.
As a mitigating measure, the ADB will coordinate closely with the government and other development partners to support the implementation of the countercyclical development expenditure program. Where necessary, ADB will repurpose ongoing technical assistance (TA) and mobilize new TA resources to strengthen (i) the Ministry of Finance’s capacity for program execution, monitoring and evaluation, and improved data collection and reporting; and (ii) the availability of sex-disaggregated data. The ADB will also strengthen government capacity to manage complex shocks, including climate shocks through its broader Paris-aligned investments in Pakistan.
Third risk is prolonged economic slowdown and political tensions shift the government’s focus away from implementing key structural reforms related to macroeconomic management, gender equality and women’s empowerment, domestic resource mobilisation, public financial management, state-owned enterprise governance, and public–private partnerships.
As a mitigating measure coordinated efforts by the ADB and other development partners will promote continuity of structural reforms through (i) policy dialogue, (ii) the provision of targeted support to new programs and/or projects and the monitoring of existing ones, and (iii) capacity building TA.
The documents further revealed that the government’s budget deficit for fiscal year 2023 is estimated at $17.6 billion (or 4.9 percent of GDP), while the gross financing needs amount to $84.2 billion. The external financing is expected to be $27.9 billion, which includes IMF ($3.8 billion), ADB ($2.3 billion), World Bank ($1.9 billion), commercial borrowings and/or bonds ($6.3 billion), and short-term borrowings ($13.3 billion). The balance will be financed from domestic sources.
The ADB’s $1.5 billion loan for the program will provide 5.5 percent of the gross external financing needs and support the CDEP of $2.3 billion. The ADB is also exploring co-financing with other development partners. The government has requested (i) a regular loan of $1.25 billion from ADB’s ordinary capital resources; and (ii) a concessional loan of $250 million from ADB’s ordinary capital resources to help finance the program.
The regular loan will have a seven-year term, including a grace period of 3 years; an interest rate determined in accordance with ADB’s Flexible Loan Product plus 75 basis points; a commitment charge of 0.15 per cent per year; and such other terms and conditions set forth in the draft loan agreement. Based on the straight-line method, the average maturity is 5.5 years, and there is no maturity premium payable to ADB.
The concessional loan will have a 25-year term, including a grace period of five years; an interest rate of two percent per year during the grace period and thereafter; and such other terms and conditions set forth in the draft loan agreement.
The Ministry of Finance will be the executing agency.
The implementing agencies will be the MoF, the BISP, the Ministry of Industries and Production, the Ministry of National Food Security and Research, and the SBP. The programme’s implementation period is from 1 July 2022 to 30 June 2023. The loan closing date is 31 December 2023.
Copyright Business Recorder, 2022