Pakistan gets $658 million financial package from ADB
The ADB approved the package under three different loans, days after finance minister Shamshad Akhtar admitted that Pakistan's public debt was “unsustainable”.
Cash-strapped Pakistan has got a USD 658 million financing package, including an expensive USD 300 million loan at market rates, from the Asian Development Bank (ADB).
An ADB statement said the money will “help Pakistan achieve its goal of more inclusive and sustainable growth and development”.
The ADB approved the package under three different loans, days after finance minister Shamshad Akhtar admitted that Pakistan's public debt was “unsustainable”.
The loans include USD 300 million to improve domestic resource mobilisation, USD 275 million to rehabilitate schools damaged by the August 2022 floods, and USD 80 million to enhance farm productivity to improve food security, the ADB said on Wednesday.
The announcement by the Manila-based lending agency came as the World Bank’s Debt Management and Sustainability Mission met finance minister Akhtar to review the debt management of the country.
Last week, Akhtar announced that Pakistan’s debt burden has become “unsustainable”. World Bank’s Vice President for South Asia Martin Raiser disagreed.
Global assistance
The ADB is already paying the salaries of half of the staff of Pakistan’s Debt Management Office, which should be paid by Pakistan's finance ministry.
According to the Express Tribune newspaper, the USD 300 million loan will have a 15-year term, including a grace period of three years.
The Flexible Loan Product is a market-based floating rate lending instrument and at current market prices, it would cost Pakistan over 6 per cent interest -- a cost almost three times more than the concessional lending by the World Bank and the ADB.
The 15-year tenor of the ADB loan is also relatively shorter than its previous financing to Pakistan.
Earlier, the Pakistan Tehreek-e-Insaf (PTI) government took a USD 400 million loan from the World Bank for reforms in the Federal Board of Revenue.
Pakistan’s tax revenue performance is comparatively weak with tax collections as a share of GDP declining from 10.8 per cent in FY2018 to 10.1 per cent in FY2022, according to ADB.
The ADB stated that several factors contribute to this situation, including the complex tax system, a high level of informality in the economy, and a weak tax administration, all of which result in a low tax compliance rate.
(With agency inputs)
