Pakistan secures $3bn at 1pc

muhammadhafeezmalik · Jan 13, 2023

Pakistan secures $3bn at 1pc

Pakistan has secured over $3 billion in fresh funding from multilateral lenders on concessional terms and the inflows will start during the current fiscal year.

The international lenders granted this significant loan at about 1pc interest rate with a repayment period of 40 years during the recent donor conference held in Geneva.

Secretary Planning Zafar Ali Shah told journalists that the international community led by multilateral agencies had made “clear pledges of about $9.7bn” against Pakistan’s expected target of about $8.1bn.

“This was also an ambitious target given the global economic slump amid surging inflation and the Ukraine war but was significantly oversubscribed,” he said.

These pledges, he added, were in addition to $13.5bn to be arranged through separate sources under Strategic Recovery Objectives for the development of Railways Mainline Track (ML-1) from Karachi to Peshawar, upgradation of Indus Highway and 10-year National Flood Protection Programme which had been approved by the Council of Common Interests (CCI) in 2018 at an estimated cost of Rs332bn but could not take off over the subsequent four years.

He said a $2.7bn loan request had been placed with China for the upgradation of the first phase of the ML-1 that spread mostly in Sindh and partially in Punjab where the existing track had been seriously damaged by recent floods. The ground level of the damaged track has to be increased with redesigning. He said the $9.8bn project would be built in three phases.

Responding to a question, the secretary said about $8.7bn funding from multilateral was loan as they do not extend grants but given the concessional terms of financing, practically these are only service charges if seen in the prevailing context of 5pc plus interest rates in the United States, UK and European Union.

The secretary agreed that the details of $4.2bn funding from Jeddah-based Islamic Development Bank (IDB) were yet to be looked into since its announcement was a “pleasant surprise” and quite higher than earlier discussed. The multilateral lenders like the World Bank, ADB and Asian Infrastructure Investment Bank (AIIB) had pledged about $3bn additional funds than their normal annual financing pipelines.

For example, the entire $1.7bn financing announced for Sindh was outside the normal portfolio and would attract just a 1pc interest rate and 40-year repayment.

Responding to a question, Mr Shah did not agree that any cut had been imposed on Rs727bn Public Sector Development Programme (PSDP) for the current fiscal year which may be even higher due to additional flows in the foreign exchange component.

He said the World Bank had pledged $2bn, Islamic Development Bank $4.2bn, ADB $1.5bn and Asian Infrastructure Investment Bank (AIIB) $1.1bn.

He said the pledged funds would be available to Pakistan in three years in line with project implementation but significant funds would flow within the current fiscal year and help support foreign exchange reserves.

Pakistan, he said, had already spent about $1.5bn from its resources for flood recovery and relief. He said the total need assessment confirmed by multilateral lending agencies had been put at $16.3bn after taking into account the losses and damages worth $30.1bn.

The rehabilitation costs would be funded on a 50:50 basis by the development partners and Pakistan through both federal and provincial development plans.

The secretary also informed that a recovery and reconstruction cell will also be established in the Ministry of Planning, Development and Special Initiative for the funds received from multilateral and mutual agreements and coordination with provinces.

The entire development and implementation exercise would be driven by the provincial governments while the Planning Division would facilitate their coordination with international lenders.

Similarly, the federal government will also establish a technical committee for the utilisation of money, the secretary said, adding similar technical committees would also be set up at the provincial and district level.

He said that efforts will be made to stop the decline in the growth rate during the current financial year with the help of international inflows. The secretary said $8bn will be spent by the federal government in the next three years in the flood-hit areas.