ISLAMABAD: The Asian Development Bank (ADB) has indicated that it could give roughly $6 billion in loans to Pakistan over the next three years, which is 50% more than the previous estimates, suggesting growing dependence of the country on foreign lenders.
The Manila-based lending agency would provide the assistance under the three-year (2017-19) Country Operations Business Plan, said sources in the Ministry of Finance.
The ADB – one of the two largest lenders to the country – could release on average $2 billion a year, which is far higher than the annual assistance Pakistan is currently receiving.
The proposed package includes financing for the Peshawar rapid bus transit service and for creating the Pakistan National Disaster Management Fund. The fund is expected to receive $750 million in three equal tranches.
Another project Gwadar Urban Development – the first such ADB scheme in Gwadar – is likely to be provided $100 million.
For connectivity between the Central Asia and South Asia regions, the ADB has indicated a loan of $850 million under its Central Asia Regional Economic Cooperation (Carec) initiative. It intends to finance three projects for the development of roads and railways to connect the two regions.
Under the previous 2016-18 Country Operations Business Plan, the ADB had indicated giving $3.9 billion. The plans are prepared under the five-year Country Partnership Strategy. The existing partnership strategy will end in 2019.
Over the next couple of years, Pakistan’s reliance on the ADB and World Bank may significantly increase because of the end of International Monetary Fund (IMF)’s Extended Fund Facility this year and the country’s growing infrastructure development needs.
Another major difference between the previous business plan and the proposed one was the increase in the share of expensive loans, the sources said.
Under the 2016-18 plan, the share of expensive loans, known as Ordinary Capital Resources, was roughly 72% of total loans, which could now be increased to 78% of the total lending of $5.9 billion.
One of the reasons is the federal government’s preference for policy loans that are used for budget financing instead of physical infrastructure. The second important factor is the availability of relatively less expensive loans.
Against the $2.8-billion expensive loans based on market interest rates under the previous plan, the ADB has proposed to give $4.6 billion in expensive loans in the next three years, up 64%. It has also indicated giving $1.3 billion in concessionary loans under the new plan.
A continued decline in exports and foreign direct investment has pushed the government to bank more on foreign loans to balance the external book.
Of the planned assistance of $5.9 billion, $2 billion is in the shape of budget financing. This has brought down the foreign funds for infrastructure projects despite a huge requirement for upgrading and expansion.
The IMF has projected Pakistan’s external financing needs at $11.5 billion for fiscal year 2016-17, which will grow to $13 billion in 2017-18 and $15 billion in 2018-19.
A debt sustainability analysis carried out by the IMF showed that Pakistan’s external debt would remain on a downward trend over the medium term under the ‘most stress’ scenario, with the peak in external financing needs under the ‘most severe stress’ scenario.
It has put the financing needs at around 3.7% of gross domestic product in the most severe stress scenario, which is still below the risk assessment benchmark of 5%.
The ADB plans to give a $180-million loan to the Khyber-Pakhtunkhwa government for the construction of Peshawar Sustainable Rapid Bus Transit Corridor.
The energy sector reforms programme may get $400 million in addition to the $300 million allocated for the public sector enterprises reforms, mainly for investment in the Pakistan Railways.