ADB green-lights $300m loan for PR reforms

Lender links loan with commitment to trim Railways workforce

ISLAMABAD: The Asian Development Bank (ADB) approved yet another $300 million loan on Thursday for balance of payments support in return for Pakistan’s commitment to trim the 78,000-strong workforce of Pakistan Railways and introduce better corporate practices in state-owned entities.

This was the second such loan that the Manila-based lending agency approved over the past eight days.

Last week, the ADB had also approved $300 million for ‘energy sector reforms’.

The credits would be used for budgetary support and providing a cushion for dwindling foreign currency reserves that stood at $15.4 billion by the end of past week.



Pakistan and the ADB hastily signed the loan agreements the same day, reflecting the government’s desperation to receive the tranche before the end of the outgoing fiscal year.

Xiaohong Yang, the ADB’s Country Director for Pakistan, and Tariq Pasha, Secretary of the Economic Affairs Division, signed the loan agreement in Islamabad.

The loan will support Pakistan’s efforts to implement major structural reforms and efficiency initiatives to improve the performance, transparency, and financial sustainability of public sector enterprises (PSEs), an ADB handout stated.

It added that the financial performance of many PSEs, employing a workforce of more than 400,000, had been weak in recent years, despite significant budget support.

The loan programme will also support government efforts to improve the performance of PSEs by improving corporate governance and accountability, besides reducing their contingent liabilities.

The programme will facilitate creating fiscal space for critical development expenditures – a hint towards laying off thousands of surplus staff working in the PSEs.

In June last year, the ADB approved a $600 million package on the premise that conditions for privatisation were most advanced in the financial sector, while distribution companies in the power sector, Pakistan Steel Mills and Pakistan International Airlines needed substantial upfront reforms and investments. It released the first tranche of $300 million in June last year.

“ADB is proud to support the government’s commitment to implement reforms that will ensure financial sustainability of these firms while improving efficiency and cost-effectiveness,” said Xiaohong Yang, ADB’s Country Director for Pakistan.

The programme will strengthen fiscal sustainability and freeing of finances for priority development projects, said the ADB.

The sub-programme-II of the PSEs reforms package specifically targets Pakistan Railways. The entity is not on the active list of privatisation and the government announced to improve its performance through restructuring.

According to the ADB’s assessment, Pakistan Railways had been without periodic modernisation, necessitating manual labour, resulting in a workforce of 78,000, requiring more than $375 million annually in pays and pensions.

The assessment also showed that about 70 per cent of financial resources were eaten up by salaries and pensions.

The ADB believes that the workforce of 78,000 employees was far more than what the entity required.

The fresh $300 million tranche will be used for reforming Pakistan Railways, including restructuring of its human resource.

“Obsolescence of human resources and procedures, and inadequate HR capacity limited the overall performance of Pakistan Railways,” the ADB stated.

Sources in the Finance Ministry said that Pakistan Railways had prepared an interim human resource restructuring report.

Agreeing that the workforce had to be reduced to a sustainable level, the sources said that a step in this direction would be not to fill posts falling vacant every year because of retirements.



The ADB assessment showed that Pakistan Railways needed alternative approaches for improving efficiency, service delivery, and asset management, besides reducing contingent government liabilities created by inappropriately-skilled staffing, maintenance of non-core operations, large unfunded pension liabilities, limited revenue generation and issues in financial management and internal controls of its operations.

Under previous $300 million tranche, the government had been asked to design critical communication strategy and policies to address important issues pertaining to workers, including voluntary separation scheme, pensions and training.

Under the terms of the second tranche, these polices would be rolled over, including the retrenchment of Pakistan Railways employees.

Another critical target under the programme’s second sub-programme is to increasing the compliance rate of companies to Corporate Governance Rules to 50 per cent.