ISLAMABAD: Pakistan has requested the Asian Development Bank (ADB) to double loan size of the energy sector reforms programme to $800 million amid the country’s growing dependence on foreign lenders to meet its budgetary needs.
Finance Minister Ishaq Dar made the request to ADB Country Director Werner Liepach during a meeting held on Monday, officials said.
The meeting had been called to review the Manila-based lending agency’s proposed $5.9 billion loan package under the three-year (2017-19) Country Operations Business Plan, said officials of the Ministry of Finance.
Of the original proposed loan size of $5.9 billion, $2 billion was in the shape of budget financing. However, the government desires that programme lending should be increased to $2.4 billion, as it seeks an additional $400 million in the name of energy sector reforms.
This will also increase the share of budget financing to over 40% of the proposed $5.9 billion loan package.
Originally, the ADB proposed $400 million for the energy sector programme in two equal tranches to be disbursed in 2017 and 2018. Dar insisted that instead of the $200 million tranche, the size should be doubled to $400 million, said the officials. The ADB country chief agreed to the government’s request.
The decision to increase the budgetary financing would further cut foreign loans for infrastructure projects despite a huge requirement for upgrading and expansion.
Since 2014, the ADB has approved $1.2 billion in budgetary support in return for commitments to cut electricity subsidies, fast track privatisation and run the power sector on a commercial basis.
Pakistan has failed to meet these conditions except for slashing power subsidies and yet the ADB appears generous in extending the energy sector loans. By the end of June this year, the country’s total external debt stood alarmingly high at $73 billion, according to the State Bank of Pakistan. Owing to declining exports, stagnant foreign investment and a slowdown in foreign remittances, the country may face problems in servicing this debt without taking fresh loans.
The IMF has projected that Pakistan’s external financing needs would grow to $11.5 billion in the current fiscal year, then rise to $13 billion in 2017-18 and $15 billion in 2018-19.