Loans from the ADB

The refusal by the Asian Development Bank (ADB) to release tranches from the loans that it has agreed to lend to Pakistan, and the subsequent fiscal crunch the government is likely to face, is largely the fault of the government itself. While so-called “Friends of Democratic Pakistan” have been less than forthcoming on their commitments of financial assistance, institutions such as the IMF and the ADB have stood ready to assist Pakistan. The point here is not to advocate loans but to state that sometimes they are needed, especially if the idea is to improve the economy’s productive capacity or enhance the government’s capacity to deliver services to ordinary Pakistanis. The ADB has placed reasonable conditions for the loans, all of which are development-oriented. For instance, for a loan designed to assist the development of capital markets in the country, the ADB required the government to introduce a regulatory framework for financial institutions before parliament — which was not done. One is tempted to ask if the legislation has even been drafted.

Some of the loans have been designed to enhance the ability of the government to attract investment in the infrastructure sector, a prerequisite for long-term growth. In order to obtain the loans, the government has to provide commitments for the budget allocations of projects for the National Highway Authority for the next two years. This, too, has seemingly not been done. This dithering has cost the national exchequer $650 million in ADB financing. Needless to say, the shortfall in revenues will be filled through the one source that causes more inflation than any other: borrowing from the State Bank, or printing money. Clearly, the better approach would have been to put in place a mechanism to obtain the funds and put them to effective use.

Published in The Express Tribune, June 30^th, 2010.