ISLAMABAD: The Asian Development Bank (ADB) is worried over the high number of “problem projects” in Pakistan even though the situation has improved in the last year.

Ineffectively utilising loans for project financing leads to sub-optimum project outcomes and lower than envisaged benefits to the people and higher debt-servicing cost to the nation because of cost overruns and project delays, the Manila-based lender said in a communication with the government.

It said that 20 (or 77 per cent) of its 26 active loan projects were “on track” as of Dec 31, 2015 while 19pc loan projects were rated as “potential problem” and 4pc as “actual problem”.

This performance was relatively better in 2014. For example, 14 out of 20 projects (70pc) were rated as on track, 25pc as potential problem and 5pc as actual problem.

The ADB highlighted that the improvement in the percentage was mainly because of induction of additional projects in the portfolio, otherwise the number of potential problem and actual problem remained unchanged at five and one, respectively, in these two years.

On top of that, the performance rating of 14 ongoing projects in 2015 changed during different quarters due to “various implementation challenges” and six projects turned from on track to potential problem while eight potential problem projects moved to on track category due to efforts of the ADB and the government.

The projects declared actual or potential problem during the course of implementation included National Trade Corridor Highway Investment project, Water Resources Development in Federally Administered Tribal Areas, Jamshoro Power Generation Project, National Highway Development in Balochistan and Power Transmission Enhancement Investment Programme.

The project performances are rated on the basis of five indicators including procurement, disbursement, financial management, social safeguards and technical problems as agreed with the executing and implementation agencies upon loan approval.

The ADB said that according to its electronic operation (e-ops) project profiles, the contract award target at the start of the year 2015 was projected at $886 million which was later revised down to $485m after review missions were carried out and discussions were held with the authorities. Simultaneously, during the portfolio review in the first quarter of 2015 and the 2015 Country Partnership Review, discussions were held with authorities on the likely achievement of the targets and the authorities agreed to award $695.6m in contracts.

The actual contract award amount achieved in 2015 was $1.068 billion — $674.25m from investment projects and $394m from policy reform programme. “However, there was substantial underachievement in energy sector projects, specifically in the Power Transmission Enhancement Investment Programme. Similarly, the disbursement target at the start of the year was projected at $602m in the e-ops, which was later revised to $370m.

In the last decade Pakistan portfolio underwent significant changes, the ADB said. From 2000 to 2005, the number of loans increased sharply from 43 to about 80. The ADB and government initiated “spring cleaning” exercise in 2007, restructured the portfolio to bigger loans in future operations, leading to consolidation of portfolio into fewer and larger projects. As a result, project loans reduced from 59 in 2006 to 24 in 2011.There were a total of 31 active projects on Dec 31, 2015.

Notwithstanding, the volume of project-based lending remained stable at an average $3.5bn during 2008 to 2012. It significantly increased to $4.5bn in 2013 and further increase to $6bn in 2015. Similarly, programme lending reduced from about $3bn (20 loans) in 2006 to zero by the end of 2011 as the standby agreement negotiated with the International Monetary Fund in 2008, governing policy-based lending, lapsed in September 2011.

In 2014, the active portfolio increased to $5bn including resumption and subsequent approval of programme lending of $400m. In 2015, the total active portfolio further increased to $6.4bn with approval of programme lending of $399m.

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