ADB to approve $500m budgetary support

ISLAMABAD: The Asian Development Bank (ADB) has decided to approve a $500 million budgetary support on August 27, after a delay of over three months, which is pegged with the financing plan to get rid of inter-corporate circular debt.

The executive board of the Manila-based donor agency would take up Pakistan’s request for the approval of the third tranche of $500 million next month after the government indicated that it would present a comprehensive financing plan much before the board meeting, said a finance ministry official.

The loan is part of the Accelerated Economic Transformation Programme, approved in September 2008.

An official of the ADB told The Express Tribune that the donor agency has also decided to augment the programme by another $500 million. Now the ADB would lend $2.3 billion by 2012 against an early allocation of $1.8 billion till next year.

So far, the ADB has released $1 billion in two equal installments. The last tranche was released on June 30, 2009.

The third tranche of $500 million was scheduled for May but due to the government’s failure to provide a comprehensive financing plan to end the circular debt among state-run companies, the ADB postponed the approval.

It also deepened the government’s woes, which was striving to finance the soaring budget deficit, as the money was meant for budgetary support.

“Complete resolution of the circular debt problem seems quite difficult until the government tightens its belt,” said an official of the ADB on condition of anonymity.

According to rough estimates, the inter-corporate debt has surged to $5 billion. The government has parked about $3.5 billion debt in a holding company and is paying almost $500 million annually on account of interest on this amount.

A finance ministry official said that the circular debt plan has not been finalised yet, but hoped that during this week the government will give it final touches.

He said the government may again have a second Energy Summit on July 31 to review the outcome of the first Energy Summit held in May. In the last summit, the government had committed to injecting Rs66 billion in the system to get rid of the vicious cycle of inter-corporate debt.

The loan will have three major outcomes. Priority would be given to implementation of a power sector recovery plan followed by social safety nets and continuation of financial sector reforms.

The ADB roadmap to resolve power sector problems includes fast-tracking power project approvals and their implementation, giving incentives to power companies to invest in improvement of generation companies’ infrastructure and rationalising tariffs by phasing out subsidies.

The ADB estimates show that a successful implementation of the plan is expected to result in an additional generation of at least 3,500 megawatts during the next one and a half years.

Published in The Express Tribune, July 21^st, 2010.