ADB approves $500m emergency loan for Pakistan

Money would help deliver social protection programmes to poor, expand health sector capabilities and create jobs

ISLAMABAD: The Asian Development Bank (ADB) on Wednesday approved $500 million emergency loan for Pakistan, as the government also upward revises its external loans estimates to $14 billion for the outgoing fiscal year.

The ADB approved $500 million loan to help Pakistan deliver social protection programmes to the poor and vulnerable, expand health sector capabilities and offer a pro-poor fiscal stimulus to boost growth and create jobs as the country fights the coronavirus pandemic, according to Manila-based lending agency's press statement.

Pakistan had sought the 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.

The ADB charges London Interbank Offered Rate plus 0.5% interest rate and the facility is available for 10 years.

On back of three emergency loans by the ADB, the gross loans approved by the ADB for the outgoing fiscal year are expected to touch $2.8 billion as against original estimates of $1.7 billion, according to the Economic Affairs Ministry officials.

The ADB lending has also contributed into arranging $14 billion external loans in fiscal year 2019-20 – up by over $1 billion against the budgetary estimates.

Out of $14 billion, an amount of $9.3 billion will be utilised for returning the previous loans.

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For this fiscal year, the government had estimated receiving $13 billion including $3 billion Eurobonds.

However, due to the central bank's preference for hot foreign money, the finance ministry did not float the bonds.

The gap is filled by increasing share of commercial financing from budgeted $2 billion to $3.4 billion and additional borrowings from the ADB and the World Bank (WB), said the ministry officials.

As against budgetary loans of $1.2 billion, Pakistan now expects receiving nearly $2 billion from the WB, said the officials.

The PTI government, like its predecessor, has been heavily relying on the foreign loans to remain afloat.

For the next fiscal year 2020-21, the Ministry of Finance has estimated receiving gross $15 billion loans and $10 billion of these are estimated to be consumed for repayments of maturing loans.

The ADB's fresh $500 million loan has been taken to meet social protection related expenditures, besides retaining the gross official foreign currency reserves above $10 billion.

Asian Development Bank President Masatsugu Asakawa noted that the Covid-19 pandemic hit Pakistan at a critical point in its ongoing economic recovery programme.

He said the ADB was fully committed to supporting Pakistan through this difficult period.

The ADB president observed that the $500 million loan would help plug selected funding gaps as the government implements its countercyclical development plan, including strengthening the country's social safety net and health sector capacity.

The Covid-19 is expected to lead to a sharp decline in growth, revenue collection, and significant job losses in Pakistan.

The country's health response is hampered by a low number of health workers relative to the population and inadequate availability of hospital beds.

Pakistan's economy is projected to contract by 0.4% in the outgoing fiscal year.

The ADB maintained that its Covid-19 Active Response and Expenditure Support (CARES) Programme would support various government initiatives, including cash assistance payments to 3 million daily wage workers, of whom approximately 23% are women, and cash grants to 7.5 million families under the Kafalat social protection programme.

The programme will also help fund the acquisition of additional ventilators and coronavirus protective kits for medical staff, including appropriately sized personal protective equipment for women.

To prevent job losses, the loan will support young entrepreneurs, including at least 25% women, through the government's youth entrepreneur scheme, Kamyab Jawan.

The ADB's CARES Programme will facilitate parallel financing of $500 million from the Asian Infrastructure Investment Bank and another $500 million from the World Bank's Securing Human Investments to Foster Transformation (SHIFT) development policy credit programme.

The CARES Programme was developed in close coordination with these development partners, the International Monetary Fund, and other bilateral donors.

The loan is funded through the Covid-19 Pandemic Response Option (CPRO) under ADB's Countercyclical Support Facility.

The CPRO was established as part of ADB's $20 billion expanded assistance for developing member countries' Covid-19 response, announced on April 13.

The CARES Programme is part of ADB's integrated package of support to help the Government of Pakistan's immediate efforts to mitigate the significant negative health, social, and economic impacts of the coronavirus pandemic.

On May 19, ADB had approved a $300 million emergency assistance loan to strengthen Pakistan's public health response to the pandemic and help meet the basic needs of vulnerable and poor segments of society.