Pakistan’s desire to get loans amounting to $1 billion from international lenders for budgetary support hinges on a clean chit to be given by review missions that have arrived in Islamabad. The missions will evaluate whether Pakistan has fulfilled conditions in letter and spirit.
In a sign of desperation to seek the money by next month, Finance Minister Ishaq Dar on Saturday held back-to-back meetings with Japanese Ambassador Hiroshi Inomata, and Asian Development Bank (ADB) Country Director Werner Liepach.
Pakistan is eying to get $100 million from Japan, $400 million from the ADB and $500 million from the World Bank. Last week, Dar also held a meeting with the World Bank’s managing director, briefing her about the progress that the government has so far made in meeting conditions.
If the lenders delay the approval of the loans beyond September, the government will have serious problems in achieving certain targets agreed under the $6.2-billion Extended Fund Facility with the International Monetary Fund.
The country’s international lenders have joined hands in areas of common interests aimed at pushing the government to fulfill the promises that it made for getting $1 billion. International lenders have decided to approve the money simultaneously.
Pakistan is seeking the loan in the name of energy sector reforms but the intended purpose of the borrowing is to fill financing gap. In the last ten years, Pakistan has borrowed $17 billion for budgetary support amid independent economists concerns about the increasing size of budgetary support. Foreign funding is usually preferred for creating physical assets, particularly construction of mega projects.
Dar shared with Liepach details of progress achieved on Energy Development Policy Credit-II and said that most of the prior actions in this regard had been completed, according to a handout issued by the Ministry of Finance.
However, the lenders are not going to blindly trust the government. An ADB Review Mission arrived on Saturday, which would start evaluating the deliverables, according to sources. They said compliance of the agreed actions will determine the date of loan approval.
The Review Missions of the World Bank and Japan International Cooperation Agency would also work with the ADB teams to evaluate the performance, they added.
They said the review missions would take about 10 days to analyse the progress on prior conditions. If they find everything in order, it will take at least another one month to negotiate the loan, said sources.
However, in case the progress is less than satisfactory, the loan approval may be delayed to October, which will disturb the government’s financing plans for the first quarter of the current fiscal year.
As part of a prior condition of the $1-billion loan, Pakistan has already shared a plan to reduce circular debt in the next three years. The plan envisages recovering circular debt from honest electricity consumers through increase in tariffs and imposition of surcharges.
However, the government has so far failed to implement the condition on operationalisation of Central Power Purchasing Agency (CPPA) and formalisation of its market rules.
Pakistan and the ADB also discussed the possibility of contracting a loan for improving the country’s transmission network. The ADB is keen to approve $1 billion multi-tranche facility for the transmission lines by next year, subject to fulfillment of certain conditions. The Manila-based lender is likely to approve a new tranche this year in the range of $200 million to $400 million for power distribution network.
Published in The Express Tribune, August 9th, 2015.
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