ADB approves $600m loan package

$2.1 billion borrowed from lenders in just a week


Shahbaz Rana June 29, 2016
$2.1 billion borrowed from lenders in just a week. PHOTO: AFP

ISLAMABAD: The federal government has embarked upon a dangerous path to build foreign currency reserves through borrowings. The Asian Development Bank on Tuesday approved $600 million loan package for Pakistan, increasing new loan contracts to $2.1 billion in just a week.

Under the latest programme, the ADB will disburse the first subprogram of $300 million in a couple of days, according to a handout issued by the Manila-based lending agency after the meeting of its board. The second tranche will be disbursed next year.

IMF approves $501m loan tranche

The $600 million, the ADP said, would help Pakistan roll out major structural reforms to improve the performance and financial sustainability of its public sector enterprises. The loan will be utilised in financing the budget instead of creating any asset.

Of the $300 million, an amount of $100 million has been borrowed at an interest rate of 2% per annum for a period of 25 years. The remaining $200 million has been obtained at an interest rate equivalent to London Inter-bank Offered Rate plus 0.5% for a period of 15 years.

In the past three years, there has been a drastic shift from getting projects loans used for asset building towards policy loans meant for budget financing.

The government and the ADB showed an unusual haste on Tuesday and signed the agreement for the initial $300 million tranche within hours of its approval from the ADB board.

Apparently, the purpose is to get the money before June 30 aimed at meeting a condition of the International Monetary Fund (IMF) on increasing foreign currency reserves held by the central bank.

Instead of building foreign currency reserves through exports, the finance ministry has been showing an increase in reserves by borrowing expensive foreign commercial loans.

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As of June 17, the central bank’s own gross official reserves stood at $16.8 billion, out of which over $9 billion have been borrowed from various sources. This includes $1.5 billion foreign commercial bank borrowings. To boot, Saudi Arabia ‘gifted’ $1.5 billion and China deposited $1 billion with the central bank to help Pakistan ‘bolster’ its reserves.

The ADB became the third agency that in the past seven days to approve policy loans for Pakistan in the name of reforms. On June 22, the World Bank approved $1.02 billion in a bailout package that followed a $500 million loan approval by the IMF. The WB package includes $420 million guarantees that Pakistan will utilise for borrowing another $1 billion from international debt markets.

The government recently changed the definition of total public debt aimed at understating the actual debt burden. It amended the Fiscal Responsibility and Debt Limitation Act, 2005 through the Finance Bill, 2016 for changing the definition.

Now the public-sector enterprises debt and the publicly guaranteed debt has been excluded from the statutory public debt definition. After including all the borrowings, the IMF has projected Pakistan’s external debt at $71 billion as of end June while the finance ministry shows the level of external debt at $53 billion only.

Published in The Express Tribune, June 29th, 2016.

COMMENTS (4)

Khalid Latif | 7 years ago | Reply Only one sentence. I pity the next governments and the poor people of Pakistan's future.
Hatim | 7 years ago | Reply I thought the finance minister had claimed we would not be required to borrow from foreign backs. What a liar.
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