ADB cautions loan suspension for Pakistan over financial reporting delay

The Asian Development Bank (ADB) has issued a warning to the Pakistani government regarding potential loan suspensions due to delays in financial reporting.

During a Financial Management country consultation Mission, which took place from October 27 to November 8, 2023, the ADB emphasized the critical need for the timely submission of Audited Project Financial Statements (APFS), Audited Entity Financial Statements (AEFS), and compliance reports regarding Financial Covenants (FC).

Pakistan, recognized as a significant partner of the ADB and the largest borrower in the Central and West Asia region with an active portfolio exceeding $9 billion, faces challenges in governance and financial management.

The ADB’s Country Partnership Strategy for Pakistan (2021-2025), as reported by Business Recorder, has outlined several areas for development, including governance, tax administration, policy, regulatory systems, and institutional reforms.

The consultation mission, led by Musaddiq I Shaikh, Financial Management Officer at the ADB, met with officials from Pakistan’s Economic Affairs Division (EAD), Auditor General of Pakistan (AGP), and various executing and implementing agencies.

The discussions focused on auditing requirements, the status of the Financial Management Action Plan (FMAP), and the consequences of non-compliance with financial management practices.

Key issues identified include delays in the submission of APFS and AEFS, challenges in recruiting independent auditors, and the suspension of board activities following a government change in April 2022.

These delays pose a significant risk to the continuation of ADB’s financial support.

The ADB has outlined that a delay of more than six months in submitting APFS could result in the withholding of advances and new contract approvals, and a continuous delay of 12 months might lead to a suspension of the loan.

In response, the Economic Affairs Division has committed to addressing these challenges promptly.

Steps include expediting the submission of outstanding audit and compliance reports, securing approval for the National Highway Authority’s business plan, and facilitating the hiring of auditors to ensure compliance with Financial Covenants for the years 2017-2022.