Pakistan, donors in row over utilisation of loans

Pakistan locks horns with international financial institutions over the mechanism for utilisation of loans.

ISLAMABAD: Pakistan has locked horns with international financial institutions over the mechanism for utilisation of $3 billion worth of loans and diversion of funds from ongoing projects to reconstruction efforts in flood-hit areas.

The tussle between Pakistan, the Asian Development Bank (ADB) and the World Bank (WB) may delay an early launch of the reconstruction phase as the fate of the entire flood aid now hangs in the balance.

Sources in the finance ministry said the government has taken exception to the ADB’s decision to shift approximately $1.5 billion from ongoing projects to flood-related reconstruction projects. The Manila-based agency has announced that it will provide $2 billion for the multi-billion-dollar reconstruction phase.

The government has also opposed the ADB’s demand for powers to award contracts and for procurement and monitoring rights, sources said. It would write a note to the ADB, seeking reconsideration of the request for sweeping powers of tendering, procurement and monitoring of reconstruction projects, they added.

The floods began in late July in the wake of unusually heavy monsoon rains, affecting one-fifths of the country’s total area with around 20 million survivors.

Nearly 2,000 people died, while millions were left homeless, according to the United Nations.

Dozens of bridges had been washed away while more than 1.9 million homes were damaged and destroyed. Around 5.9 million acres of farmland was damaged, a severe blow to agriculture, the most important pillar of the economy.

Transparency questioned

The international community has expressed concern over transparent use of money. Both the WB and ADB are mostly diverting funds from ongoing projects instead of committing entirely new loans.

The World Bank has announced that it will give $997.5 million for the reconstruction drive, but it too will divert $300 million from the already committed Poverty Reduction Support Credit. This credit has been withheld for the past several months because of Pakistan’s inability to increase its power tariffs and levy the reformed General Sales Tax.

The ADB’s $2 billion is a blend of concessionary and commercial loans. Juan Miranda, Regional Director General of the ADB, recently said: “We will pay against progress,” underlining the need for ensuring transparency in use of donor money.

Sources in the finance ministry questioned the move, saying how can the  government give spending powers to the ADB when it has to repay the loan. “The ADB’s demand to appoint a contract management consultant with sweeping powers is unjustified,” a source said.

“We were expecting that Pakistan’s bureaucracy will resist transparency measures,” said a senior ADB official on condition of anonymity.

He said the idea behind the demand seeking procurement and monitoring powers was to check corruption and ensure swift implementation of projects.

He said the decision to take out $1.5 billion from the current portfolio was taken after witnessing slow progress on these projects. Some 10 to 12 projects have been marked as ‘slow moving’. The bank also wanted to shelve 15 projects but faced resistance from provincial governments.

Finance ministry sources said the donors were taking out money committed till 2012 and if the government utilised this money ahead of time it would create difficulties in foreign loan repayments in coming years.

Published in The Express Tribune, October 14^th, 2010.