Asian Development Bank (ADB) on Monday signed an agreement with Pakistan to provide a $1.5 billion loan for budgetary support and help flood-related rehabilitation and reconstruction activities.
Yong Ye, the country director for ADB, and Kazim Niaz, the secretary of the Economic Affairs Division (EAD), signed the loan agreement. ADB Director General for Central & West Asia Region Eugene Zhukov, Finance Minister Ishaq Dar, EAD Minister Ayaz Sadiq, and Prime Minister Shehbaz Sharif were present for the ceremony.
The loan will help finance the government’s $2.3 billion countercyclical development expenditure programme, which is intended to lessen the effects of external shocks like the Russian invasion of Ukraine. The loan is provided under ADB’s Building Resilience with Active Countercyclical Expenditures (BRACE) Programme.
The $1.5 billion loan is intended to encourage employment for individuals in the midst of disastrous floods and interruptions to the global supply chain while also promoting food security and social protection. The agreed loan would be paid out the next week and is anticipated to aid in increasing foreign exchange reserves and limiting the devaluation of the rupee.
As of October 14, Pakistan’s overall foreign exchange reserves were $13.25 billion, which included the SBP’s holdings of $7.597 billion, or almost five weeks’ worth of restricted imports.
Mr. Shehbaz thanked the management and board of directors of the ADB for expeditiously processing and approving the loan to aid the government in overcoming the destruction caused by recent floods. The prime minister expressed hope that the ADB loan would help Pakistan overcome its economic difficulties and decrease the suffering of the flood-affected population. He noted that international stakeholders including the European Union, the World Bank, ADB, and the United Nations had estimated a $30 billion loss to the Pakistani economy under their post-disaster need assessment (PDNA).
In order to provide an emergency assistance loan for the rehabilitation and reconstruction of the flood-affected areas in Sindh, Balochistan, and Khyber Pakhtunkhwa, Mr Eugene Zhukov outlined to the authorities the repurposing of an existing ADB portfolio worth $475 million.
Earlier, the $1.5 billion in BRACE assistance for Pakistan under countercyclical programmes was intended for the post-Covid recovery. Although the planning commission had expressed concerns about the interest rate, they ultimately gave in because of difficult foreign exchange conditions.
Instead of using ordinary capital resources (OCR), which carry an interest rate of around 3.15 per cent, the Planning Commission preferred soft financing at a rate of roughly 2 per cent. This comprises an interest rate of the Secured Overnight Financing Rate (SOFR) plus a fee of 0.75 per cent, for a total of roughly 3.15 per cent. The average SOFR is 2.3pc. The initiative is outside of the ADB’s standard funding programme and has fewer conditions than usual.
According to Mr Zhukov, external shocks that increased business costs and raised living expenditures have impeded Pakistan’s recovery from the COVID-19 pandemic, harming millions of Pakistanis, particularly the weak and the impoverished. According to him, the ADB initiative will assist the government in managing the effects of high prices, rising food insecurity, sluggish economic growth, and decreasing income for vulnerable populations, many of whom are still suffering from the devastation of the floods.
According to a statement from the ADB, the funding will give the government the fiscal breathing room it needs to implement its countercyclical development expenditure package, which is intended to help Pakistan’s poorest families, who are frequently disproportionately impacted during times of crisis.
The government’s assistance includes particular initiatives to advance gender empowerment and climate change adaptation, both of which have grown increasingly crucial in light of the most recent floods.
