ADB may approve a $1.5 billion emergency loan late next month to help Islamabad cope with the worsening macroeconomic crisis amid the Planning Commission’s concerns over unfavourable terms of the loan, Bloomberg reported on Sunday.
Sources said that the Manila-based finance company is expected to give the go-ahead for relatively costly financing for the $1.5 billion project on October 21, which is one month later than planned.
The International Monetary Fund programme has been unsuccessful in stabilising the country’s economy, in light of the devastating floods that have made the problem worse and the external sector worse still. On Wednesday, the Central Development Working Party—the country’s project sanctioning authority—approved the concept clearance proposal for the $1.5 billion loan under the BRACE programme (Building Resilience with Active Countercyclical Expenditures). BRACE is a part of ADB’s Countercyclical Support Facility, which does not require lending portfolio conditions that are not part of the traditional lending portfolio.
The CDWP has helped to finish the paperwork and send the loan request to the board of the ADB for approval. The loan will help deal with the worsening macroeconomic crisis, which has been aggravated by the Russian invasion of Ukraine and devastating floods, as well as the worsening economic situation. The $1.25 billion loan will be provided out of the ADB’s usual funding at an interest rate of 2.28% plus 0.75%, plus a surcharge, for a total interest rate of 3.00%.
The $1.25 billion is being secured for seven years, which is also 18 years shorter than the standard loan tenure of ADB. Another $250 million is being obtained at a rate of 2% for a period of 25 years.
The Planning Commission regards the ADB and the World Bank lending as being a better deal than the new deal because they have a longer history and charge a low interest rate.
The Planning Commission has opposed taking the $1.25 billion loan at a higher rate. “The rate is essentially a commercial loan,” the official documents read. Pakistan is already experiencing economic trouble, therefore, sponsors might negotiate for a concessional loan, the documents said. On Wednesday, Finance Minister Miftah Ismail said, “The $1.5 billion ADB is lending will also help to get a $500 million loan from another bank; that has promised me to provide the money if I get the go-ahead from the $1.5 billion loan.”
Asad Aleem, the Deputy Country Director – ADB Pakistan, said the board would deliberate upon the approval of the $1.5 billion loan on October 21st.
The finance ministry said that the ADB loan was initially scheduled to be approved in the last week of September but then the date was postponed to October 7, which is now further extended. According to the source, one of the reasons for the delay is a partnership between the ADB and the World Bank to provide budget support lending to Pakistan.
“The ADB coordinates, harmonises, and aligns sector reforms with the WB and other development agencies,” commented Aleem.
The rupee is losing value and the Finance Ministry and State Bank of Pakistan are both trying to stop the rupee’s losses. The rupee fell to Rs234.32 to a dollar on Wednesday in the interbank market and closed at that price in the open market. In the interbank market, the dollar was not available even at the high price of Rs240.
According to Finance Minister Miftah Ismail, “The SBP recently served show cause notices to 10 commercial banks for their role in currency manipulation.”
The finance minister’s high praise of the chief executives of two banks who helped bring the rupee down to Rs214 a few days ago was ironically on the list.
The documents showed that the Benazir Income Support Programme will get ADB funding for social protection, food security, and boosted business support.
The loan will be used to help finance crisis response and relief efforts and protect the poor and vulnerable, as well as to create fiscal space to finance other crisis response and relief efforts.
