ADB warns of stopping $500m worth loan release to Pakistan

Manila-based lender seeks clarification on administrative change

ISLAMABAD:

The Asian Development Bank (ADB) has warned to stop disbursement under two loans amounting to $500 million due to Pakistan’s decision, which is rooted in an internal turf war, to change controlling ministry of National Disaster Risk Management Fund (NDRMF).

The Manila-based lending agency’s warning could immediately affect disbursement of at least $150 million out of the cumulative $500 million two loans signed in December 2016 and May 2020.

Werner Liepach, Director General of the ADB, has sought clarification from Pakistan over its decision to change administrative handle of NDRMF, according to a letter seen by The Express Tribune. Pakistan unilaterally changed the administrative ministry of the NDRMF, a move in violation of December 2016 loan agreement.

The official correspondence cited two loans that Pakistan has obtained from the ADB, first $200 million in December 2016 to set up the fund and second $300 million in May this year for fighting the deadly pandemic.

Out of $300 million, $100 million is meant for the NDRMF that could be at stake. The remaining $200 million are meant for Benazir Income Support Programme (BISP) and it is not clear whether this component could also be affected, if things are not resolved to the satisfaction of the lender.

“Please also note that NDRMF has been designated as the executing agency for the health component of the recently approved loan 3923-PAK ($300 million): Emergency Assistance for Fighting the Covid-19 Pandemic (EAFCP),” according to the ADB correspondence with Pakistan.

“Therefore, any departure from the existing governance structure of NDRMF may also have consequent implications for the disbursement and fund flow of the recently approved EAFCP,” warned the ADB’s director general.

The NDRMF had been set up for disaster preparedness but the loan agreement signed with the ADB has virtually tied the hands of the government in many ways. Instead of restricting the ADB’s intervention to the loan utilisation, then Pakistan Muslim League-Nawaz government also made composition of the NDRMF board part of the loan agreement.

The successive governments’ dependence on foreign loans has led the country to a point where small decisions are also tied to consent of foreign lenders.

“It is rare that the loan documents are prepared by Pakistan. There has been a practice of preparation of these documents by the World Bank and the ADB that protect their interests first and our bureaucrats agree to majority of operational related things without gauging their ramifications,” according to an official who has remained part of these negotiations.

The DG “request(ed) the EAD to please clarify the issue of administrative control of NDRMF as soon as possible to avoid delays implementation and release of funds under both ongoing NDRMF Project and the EAFCP loan and grant approved on May 19, 2020”.

At the time of inception, the NDRMF had been placed under the Ministry of Finance and Economic Affairs. However, in August last year, Prime Minister Imran Khan decided to transfer the “administrative control” of the fund to the Ministry of Climate Change. Liepach underlined that “a unilateral change in the implementation arrangements of the project would not be in accordance with the express provisions of Article I, Section 1.02(v), Article IV, Section 4.01 (b), and Schedule 4, paragraph 1, of the Loan Agreement”.

“Pakistan would meet its obligations and not violate the agreement signed with the lender,” said an official of the Ministry of Economic Affairs. He said that the proposal to appoint climate change adviser as chairman of the NDRMF board has also been shelved.

But he said that for future loan agreements, the Ministry of Climate Change would remain the administrative ministry, until changed by the government.

At present, the finance secretary is the chairman of the NDRMF board. The board has the powers to approve projects without placing schemes for the approval of the Central Development Working Party (CDWP). This arrangement also provides a swift mechanism to foreign lenders to disburse the money due to less number of procedural requirements.

In December 2016, the government had secured $200 million loan for a 25-year term, at an interest rate of 2% per annum to set up the NDRMF.

However, in the loan agreement, the then government surrendered its sovereign right of making even small administrative changes.

It is time for Pakistan to review the article of associations and memorandum of association of the NDRMF that have limited the sovereign’s role to a greater degree.

The sources said that the change in administrative control of the ministry was rooted in a tussle between the NDRMF management and the Ministry of Climate Change.

The fund management did not want to work under the climate change ministry and it was also lobbying to either get the decision reversed or work under a third ministry, like the Ministry of Planning, said the sources.

Published in The Express Tribune, July 19^th, 2020.

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