ADB assures Pakistan $2b annually in loans

ISLAMABAD:

The Asian Development Bank (ADB) has assured Pakistan of providing $2 billion annually in new loans, as Islamabad seeks half of the amount on concessional terms amid government's inability to get cheaper credit due to its worsened ratings.

The assurance to provide $2 billion per annum has been given by the visiting ADB president Masatsugu Asakawa during his interaction with Pakistani authorities, according to the officials of the Ministry of Economic Affairs.

The Manila-based lender was expected to provide $2 billion every year from 2024 till 2027, officials said on Monday. The total four-year package amounts to $8 billion. Out of the $2 billion, the ADB will give around $1 billion at a fixed 2% rate under its concessional window, officials added.

In recent years, Pakistan has become a desperate borrower and is striking deals at unsustainably higher interest rates – ranging from 7% to as high as 11%. The finance ministry struck a $600 million deal with a bank this month at the highest ever rate of 11% in dollar terms.

The bank did not reduce the interest rates despite Pakistan and the International Monetary Fund (IMF) having reached a staff-level agreement, indicating the lender's scepticism about Islamabad's credit worthiness.

The three international credit rating agencies have placed Pakistan below the investment grade, which is now a major hurdle in tapping the foreign capital markets.

The ADB's concessional financing is cheaper than the IMF lending. The economic affairs ministry said last month that the interest rate of the IMF's Extended Fund Facility programme was around 5%.

A press statement issued by the economic affairs ministry stated that the ADB president assured Pakistan of its continued support in the areas of public-private partnership, climate and disaster resilience enhancement, domestic resource mobilisation, promoting women inclusive finance and energy sector reforms.

During the visit, the ADB president inaugurated the foundation of the Asian Development Bank's new resident mission building in Islamabad. The ADB's decision to build a permanent home in Islamabad is recognition of the deep bonds and the long-standing development partnership with the government and people of Pakistan, which joined ADB as a founding member in 1966.

President Masatsugu Asakawa also met with Economic Affairs Minister Ahad Cheema to discuss the country's development priorities and macroeconomic reforms. He reaffirmed ADB's continued support to Pakistan for complementing its development and reform agenda.

Cheema briefed the president on a series of reforms introduced by the government, including enhancing tax revenues, improving financial sustainability of the energy sector, reduction in untargeted subsidies and scaling up social protection, according to the ministry.

The ADB president reposed his trust in Pakistan's reform agenda and appreciated the required tough stabilisation measures taken by the government to bring about macroeconomic stability in the country, it added.

The ADB president travelled to Islamabad to lay the foundation of a new office building of the ADB. The lender has also appointed a new country director to Pakistan, Emma Fan – a Chinese born New Zealander. She will replace the incumbent country director next month.

The IMF has also appointed a new country head, Mahir Bicini, a Turkish national, who would take over in December.

During his address at the foundation-laying ceremony, the ADB president underscored the lender's continued support to Pakistan's climate resilience and sustainable development in coordination with other development agencies, non-government organisations, and the private sector.

"The groundbreaking of our new resident mission coincides with the beginning of consultation for ADB's new Pakistan Country Partnership Strategy for 2026 to 2030," the ADB president said.

"The new strategy will identify key challenges and development requirements, support the government in implementing key structural reforms, and boost economic and climate resilience," he added.

"The future assistance is expected to focus on mitigating the impacts of climate change, investing in the social sector, and developing climate-smart economic infrastructure. The ADB will also explore the use of digital technology to boost inclusive growth, expand opportunities, and improve government services."

The president said that the lender remained dedicated to supporting Pakistan's prosperity and regional economic integration, especially with its Central Asian neighbours. An important area of focus would be the unlocking of regional linkages through the Central Asia Regional Economic Cooperation (CAREC) programme to open new trade and investment opportunities.

Pakistan is a country situated at the crossroads of rapidly growing regions of South, Central, and West Asia. Its location and abundant human and natural resources presents tremendous potential for economic development.

The president of ADB along with a delegation also called on Prime Minister Shehbaz Sharif.

The premier emphasized that he is personally overseeing the progress of these reforms to ensure their successful implementation and long-term impact, underscoring the government's commitment to sustainable economic growth and stability.

The prime minister and ADB president also witnessed the loan signing of the Sindh Emergency Housing Reconstruction Project amounting to $400 million and Khyber-Pakhtunkhwa Rural Roads Development Project worth $320 million. Both these projects are part of the ADB's flood commitments.