Pakistan seeks $1.7b ADB loans to cushion exogenous shocks

Manila-based lender working on immediate and flexible financing to help Islamabad combat Covid-19

ISLAMABAD: Pakistan on Friday requested the Asian Development Bank (ADB) for $1.7 billion loans in next eight months, including a fresh emergency facility of $800 million, to help the country fight exogenous shocks and restore its economic growth.

The request was made during a virtual meeting between Economic Affairs Minister Makhdom Khusro Bakhtyar and ADB President Masatsugu Askawa, said the economic affairs ministry. The Manila-based lending agency said the two discussed support for the government’s response to the virus pandemic.

According to economic affairs ministry, Bakhtyar requested the ADB president for an early approval of $500 million as countercyclical support and $300 million emergency assistance lending (EAL) within this financial year.

The minister also sought the ADB president’s support for a pipeline of $900 million as various policy-based loans for reforms in capital markets, trade and competitiveness and energy sector to be approved by the ADB Board before the end of 2020, the ministry added.

The ADB said in a statement that Askawa and Bakhtyar discussed how the ADB could scale up its support for the government’s response to the novel coronavirus disease (Covid-19) pandemic. The statement was silent on Pakistan’s request of $1.7 billion ADB support.

However, it quoted Asakawa as saying that the “ADB is firmly committed to helping Pakistan fight this pandemic, reduce the impact on the poorest and most vulnerable groups across the country, and protect the economy”.

Pakistan is seeking countercyclical support facility as budgetary support against exogenous shocks to restore growth. Unlike the programme loans, no policy matrix is required to get this assistance, according to a ministry official. The ADB charges London Interbank Offered Rate plus 2% interest rate and the facility is available for 10 years.

In addition, Pakistan is also seeking $300 million loan for financial market development to enhance the efficiency, stability and inclusiveness of financial markets. The finance ministry has already prepared the policy matrix to seek this loan.

The government is also looking to secure $500 million in the name of trade and competitiveness programme as budgetary support. The ADB has pegged this loan with the introduction of important tariff and tax-related policy. The ADB has already shared the first draft of policy matrix.

This loan may be secured by August, subject to Pakistan’s ability to fulfil the prior actions – some of them can be implemented in the upcoming budget. The government has also requested $400 million energy sector reforms programme loan but its delivery might be subjected to implementation of circular debt reduction plan.

The International Monetary Fund (IMF) has identified $2 billion external financing gap in the fourth quarter of the current fiscal year and $1.6 billion in the next fiscal year. The ADB financing can help bridge that gap.

The tentative date for ADB board approval is December this year. If Pakistan manages to secure these loans from the ADB along with couple of policy loans from the World Bank, it can maintain the gross official foreign exchange reserves at around $12 billion.

“The outbreak of coronavirus in Pakistan has already led to significant loss of life and livelihood, and continues to pose serious health and economic risks to the people of Pakistan,” Asakawa said during his talks with Bakhtyar via a video link.

The ADB said it was preparing an emergency assistance package to provide immediate and flexible financing to help Pakistan combat the Covid-19 outbreak, revitalise economic activity for affected communities, and support the basic needs of vulnerable and poor segments of society.

The ADB is also working on mobilising additional grant funding for Pakistan and specific measures to support the private sector. On April 9, the ADB repurposed $50 million from Pakistan’s National Disaster Risk Management Fund to procure medical equipment to strengthen hospitals, diagnostic laboratories, isolation units, and other medical facilities in the country.

Bakhtyar said that the socioeconomic impact of Covid 19 was more severe in the developing and low-income countries due to their limited technical and financial capacity. With this in mind, Prime Minister Imran Khan appealed to the world community, including the bilateral and the multilateral development partners, for debt relief for developing countries, he added.