Govt okays expensive $500m ADB loan

 Govt okays expensive $500m ADB loan

The government of Pakistan has given the green light for acquiring a substantial $500 million loan from the Asian Development Bank (ADB) to facilitate the creation of an “enabling environment to attract private investment.” While this move addresses immediate fiscal needs, concerns arise about Pakistan’s deepening debt burden.

Chaired by Deputy Chairman Dr Jehanzeb Khan, the Central Development Working Party (CDWP) endorsed the “concept proposal” for the $500 million loan under the Promoting Sustainable Public-Private Partnership Programme, as announced by the Planning Ministry.

The loan, designated as budget support, entails the revision of existing policies, the development of new ones, and the establishment of two funds in exchange. Upon fulfilling all conditions, the ADB is expected to present the case for the initial $250 million tranche to its board for approval.

While budget support loans typically cater to debt servicing needs, they contribute to the country’s growing indebtedness in the long run as there are no assets to offset them. As of December, Pakistan’s external debt and liabilities exceeded $131 billion.

The loan, to be received in two installments, carries an interest rate ranging from 2% to 6.5%. The larger portion will be acquired at a higher rate, making it a costly borrowing option, with most of the loan having a duration of only seven years.

The Planning Commission suggested exploring concessional loans from ADB COL instead of OCR. However, due to Pakistan’s vulnerable external position and limited quota, securing such loans is unlikely.

The $500 million loan aims to enhance the enabling environment for infrastructure financing and public-private partnerships (PPP) at the federal level. Through these efforts, the government seeks to attract private finance for infrastructure investments in priority sectors like roads, housing, health, education, water & sanitation, and technology.

Despite Pakistan’s challenges in obtaining fresh loans, it has met nearly a dozen conditions to qualify for this loan, with the final condition, the approval of the federal PPP Policy, submitted to the federal cabinet last week.

The government has committed to establishing and activating two funds – the PDF Fund and the Viability Gap Fund (VGF) – and ensuring their continuous operation by allocating annual funds in the budget.

While the country has fulfilled conditions for the PPP loan, challenges persist in meeting requirements for the Climate and Disaster Resilience Enhancement Program (CDREP).

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