Pakistan has requested the Asian Development Bank (ADB) to grant a $500 million loan before June 2019 as it encounters severe hardships in maintaining foreign exchange reserves due to rising external financing needs.
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The request has been made to Werner Liepach, director general for Central and West Asia Department of the ADB, who is on a visit to Pakistan, according to sources. The ADB official arrived in Pakistan 12 days before a scheduled visit of the International Monetary Fund’s (IMF) new mission chief. Spanish born IMF mission chief is arriving on 26th of this month on his maiden visit to Pakistan, where he will stay for two days.
Pakistan plans to request the IMF to send a staff level mission after the IMF-World Bank spring meetings next month, said a senior Finance Ministry official. If an agreement reached during staff level visit, the government will present the next year’s budget on May 17 to include prior actions of a programme loan
Liepach met Finance Minister Asad Umar, Adviser to PM on Commerce Razak Dawood besides holding meetings with other key government officials. His visit is aimed at finding new avenues for enhancing disbursements of loans to Pakistan and removing bottlenecks that are hindering releases of the previously approved loans.
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However, it is unlikely that the Manila-based lending agency would accept the request in the absence of a Letter of Comfort from the IMF. Pakistan’s budgetary support remains suspended for last over two years due to deterioration in macroeconomic conditions.
The ADB had approved the last budgetary support programme in June 2017 when it sanctioned $600 million loan for energy sector reforms. Pakistan requested the ADB to approve the $500 million first loan tranche under the Trade and Competitiveness Programme. The total programme size is $800 million but Islamabad wanted that at least $500 million be disbursed before June 30, officials added.
Pakistan’s gross official foreign currency reserves stood at only $8.1 billion despite availing $6 billion from China, UAE and Saudi Arabia in the past eight months. The government has managed to compress imports and ensured double-digit growth in remittances but the measures are still not enough to meet its gross external financing requirements for this fiscal year.
Lately, the UAE also cancelled $3.2 billion oil facility on deferred payments, which affected the government’s plans for this as well as the next two fiscal years. There are also delays in disbursements of commercial loans while the exports have also not yet started picking up.
The officials said the government assured the visiting ADB official that it was working on a reforms package and the agreement with the IMF may also be finalised soon.
However, officials in the Ministry of Commerce and the Federal Board of Revenue (FBR) said it would not be easy for the government to meet the prior actions that the ADB had set for approving the $500 million loan. The conditions relate to the rationalisation of tariffs, a flexible exchange rate and tax reforms.
The government on Friday extended the last date of filing the tax returns to March 31 – exactly three months after it lapsed. The purpose is to defeat a legal amendment that bars inclusion of those taxpayers who filed their annual tax returns after the due date that was December 2018, in the Active Taxpayers List (ATL).
This will allow the FBR to immediately include nearly 69,000 new filers in the ATL, jacking up the total numbers of filers to 1.7 million. The ADB was also asking to strengthen the regulatory framework and operationalisation of the Pak EXIM Bank.
During the meetings, the ADB’s regional director general also highlighted challenges that are delaying disbursements of loans. He urged Pakistan to address land acquisition issues that are hampering disbursements of over $2 billion loans.
Liepach also sought fast track approvals of the PC-Is of the projects, as so far not even one new project is approved by the ADB in this calendar year. The ADB has an indicative ceiling of $2.4 billion for 2019.
The ADB’s official also requested Pakistan to clear draft framework agreement on Transaction Advisory Services for preparing, structuring, procuring and implementing PPP projects in Pakistan.
However, Pakistan has concerns over the draft agreement, as it would result into payments of 1.5% of fees to the ADB on loans even raised from the domestic markets. Pakistan has asked the ADB to exclude the conditions related to payment of success fee and other charges to ADB, the ministry officials added.
Both the sides also discussed the Country Operations Business Plan for 2019 and 2021. The proposed resource allocation for the next three years is around $7.5 billion.
But the disbursements would depend upon a Letter of Comfort by the IMF for budgetary loans and removal of administrative bottlenecks for disbursements of project loans.
Due to the factors, the overall foreign loans disbursements – by all international creditors in the first eight months of the fiscal year – amount to only $2.3 billion, which is lower than the last year’s level.
Both the sides also discussed the issue of slow disbursements by the ADB against the target of $1.3 billion for this fiscal year. During the first eight months of this fiscal year, the ADB disbursed only $420 million, according to the EAD statistics.
The officials said the ADB official also raised the issue of chronic circular debt that has touched Rs1.6 trillion. The government assured the DG that it would clear the circular debt and has already raised Rs200 billion through domestic Sukuk bonds.
Both the sides also discussed the possibility of availing new financial products of the ADB, mainly Special Policy-Based Lending (SPBL) and Countercyclical Support Facility (CSF).
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