Fallout from bailout: No more budgetary support loans until IMF approval, says ADB

Country head asks Pakistan to adopt a broader outlook for economic growth.

ISLAMABAD:

It was largely expected, but on Thursday the Asian Development Bank said it in public: the Manila-based lender will not be providing any budgetary support loans to Pakistan until the International Monetary Fund gives its go-ahead, a highly unlikely prospect after Islamabad abandoned its IMF bailout programme.

Addressing his maiden press conference in Islamabad, Werner Liepach, the ADB’s Pakistan country director, said that while he agreed with the finance ministry’s assessment that the country’s external financing situation will remain stable for the next few months, it remained vulnerable to international shocks, most notably a spike in oil prices or a recession in the United States and the European Union.

“Pakistan needs to look beyond immediate factors and better to have broader picture in mind,” said Liepach, referring the debt crisis and recession fears in Europe and the United States respectively. The two markets are the biggest destinations for Pakistani exports, collectively accounting for about 45% of Pakistan’s foreign trade.

Liepach’s assessment about challenges posed by a “W-shape recession” aligns with the viewpoint of independent experts who have cautioned that the country may face balance of payments problem in later part of the fiscal year ending June 30, 2012.

Finance Minister Abdul Hafeez Shaikh has recently announced that Pakistan would not seek new IMF loan as it can payback the $9 billion earlier loans on back of exceptional growth in exports and remittances. Pakistan will repay first instalment of $1.4 billion to the IMF in February next year. Pakistan will also have to payback $700 million to the ADB this year.

The IMF standby agreement expires on Friday (today).

To a question, Liepach – a German by nationality – said the ADB has no undisbursed programme loans and it would not extend new budget-support loans until the IMF issues a Letter of Assessment about health of Pakistan’s economy.

“For budgetary lending there is a need to have consensus among international financial institutions on macroeconomic stabilization of the country or at least a letter of assessment from the IMF is required before giving budgetary support loans,” he said.

Liepach said despite that Pakistan has an annual portfolio of $1.5 billion for project loans that it could use provided it fast track projection approval and initiation processes.

He said in future disbursements will be made against physical progress on the projects. Liepach said the ADB has signed eight investment programmes worth $5.6 billion with Pakistan and out of that $3.6 billion are undisbursed. He said the amount is available for drawdown provided Pakistan completes project initiation process.

Liepach said the lending agency would keep financing projects in the sectors of transport, urban services, financial sector development and energy. He also extended ADB’s support to resolve the circular debt issue.

“Pakistan cannot prosper without broader tax base, better water management, supply chain management, access to credit and energy issues resolutions”, said Liepach, adding, “all issues have been well analyzed but the challenge is how to resolve them.”

He said the ADB would finance multi-billion dollars Diamer Bash dam but the project was too big for ADB to handle, thus, a consortium of lenders would provide lending.

Published in The Express Tribune, September 30^th, 2011.