Govt approves $500mn proposed loan from Asian Development Bank

The government announced the approval of a $500 million loan from the Asian Development Bank (ADB), aimed at promoting public-private partnerships and enhancing the country’s infrastructure financing.

The Central Development Working Party (CDWP), led by Deputy Chairman Dr. Jehanzeb Khan, ratified the concept proposal for the loan under the Promoting Sustainable Public-Private Partnership Programme.

This financial support will be provided in two installments, subject to the fulfillment of certain conditions, including policy revisions and the establishment of two funding mechanisms.

The ADB's board is expected to review the approval of the initial $250 million tranche once these prerequisites are met.

The loan, which will be utilized as budget support, carries an interest rate between 2% and 6.5%, with the majority subject to the higher rate.

It is set to mature over seven years, financed through the ADB's Ordinary Capital Resources (OCR) and Concessional Ordinary Capital Resources (COL), with the larger portion coming from the more expensive OCR.

Pakistan's external debt currently exceeds $131 billion, with this loan expected to add to the financial obligations.

Despite this, the government aims to leverage the funds to foster an environment conducive to private investment in infrastructure across various sectors, including roads, health, education, and technology, without necessitating foreign loans.

During the current fiscal year, Pakistan has faced challenges in securing new loans, with the ADB disbursing $635 million of the projected $2.1 billion.

The Planning Commission has critiqued the broad scope of the $500 million loan, urging for more detailed proposals to ensure effective utilization of the funds.

Furthermore, the government has agreed to several conditions to qualify for the loan, including the establishment of the Project Development Facility (PDF) Fund and the Viability Gap Fund (VGF), aimed at supporting public-private partnership projects.

Finance Minister Muhammad Aurangzeb has also engaged with the ADB to finalize approvals for this loan and another for the Climate and Disaster Resilience Enhancement Program (CDREP), signaling ongoing efforts to meet the financial institution's requirements.