Out of this total amount, Pakistan will seek $1.25 billion from ADB’s regular ordinary capital resource (OCR) and $250 million in concessional ordinary capital resource (COL)
By Staff Reporter
ISLAMABAD: As the possibility of any immediate financing from multilateral creditors for the cash-strapped energy sector remains elusive, the government is exploring alternatives to secure programme loans for other sectors of the economy.
Despite the revival of the IMF programme, the country’s external vulnerabilities persist as the foreign exchange reserves are eroding, while the severe floods further aggravated the situation stoking the possibility of a surge in imports in the months ahead.
The economy faces accumulated flood-related losses of over $30 billion, according to initial estimates.
The Ministry of Finance has sought approval for the completion of required procedures to secure a $1.5 billion or Rs330 billion loan programme from the Asian Development Bank (ADB) under “Building Resilience with Active Countercyclical Expenditure (BRACE) programme.
Out of this total amount, Pakistan will seek $1.25 billion from ADB’s regular ordinary capital resource (OCR) and $250 million in concessional ordinary capital resource (COL).
The 7-year OCR facility includes a 3-year grace period with an interest rate of secured overnight financing rate (SOFR) plus 75 basis points contractual spread plus surcharge. On the other hand, the 25-year COL loan facility offers a five-year grace period with a 2 percent interest surcharge.
This funding of $1.5 billion will be used for social protection (BISP), food security, and enhanced support for business entities.
The multilateral creditors such as the World Bank and the ADB are finding it hard to convince their Boards and shareholders to provide more loans to bail out Pakistan’s loss-making energy sector.
The power sector circular debt peaked at Rs2.5 trillion despite the fact that the government had cleared Rs1,600 billion in the last fiscal year. The power sector losses were more than the total defence spending of the country. Currently, authorities are making all-out efforts to finalise modalities of the aforementioned ADB programme by the next month and present the case before the ADB’s Board for seeking a $1.5 billion programme loan.
The Planning Commission’s Central Development Working Party had approved the concept paper. The BRACE programme of $1.5 billion is ADB’s 2022 Countercyclical Support Programme (CSF) for supporting Pakistan in its fight against the worsening macroeconomic crisis compounded by the Ukraine war and the recent devastating floods.
To mitigate the adverse impact of cumulative exogenous shocks, especially on the poor and the vulnerable, the government’s countercyclical measures amount to nearly $2.4 billion.
The BRACE programme will provide general budget support to the government, which will help create the fiscal space needed to finance its crisis response and relief measures.
The government has agreed to launch strong governance measures to ensure sustainability and build capacity including the establishment of a steering committee of stakeholders to oversee the implementation of relief and response measures.
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