The Asian Development Bank (ADB) has delayed the approval of an $800 million financial aid package for Pakistan by five days following a request from India, which sought extra time to review the loan documents. This incident highlights weaknesses in the ADB’s rules that permit such extensions.
Government officials informed The Express Tribune that the ADB board meeting, originally scheduled for May 28, was to approve a $300 million budget support loan along with $500 million in guarantees aimed at securing foreign commercial loans.
However, the meeting was postponed, and Pakistan was notified in advance. The new date for the meeting is June 3, officials added.
Economic Affairs Secretary Dr. Kazim Niaz confirmed the postponement, stating it was at the request of the Indian executive director. He explained that according to ADB regulations, any board director can request a one-time extension of the meeting date, a provision India utilized. The ADB country office did not respond to requests for comment.
This Indian move followed its unsuccessful attempt to block the International Monetary Fund’s approval of the second $1 billion loan tranche for Pakistan. The delay at the ADB underscores the need for Pakistani representatives at the World Bank, IMF, Asian Infrastructure Investment Bank, and ADB to take a more proactive role in safeguarding national economic interests.
After setbacks on the military front, India has intensified lobbying against Pakistan’s economic progress. Nonetheless, this five-day delay is not expected to affect Pakistan’s external financing plans, with funds anticipated to be credited to the central bank following the board’s approval on June 3.
Independent economists advise the government to lessen its dependence on foreign loans, especially budget support loans. The $800 million ADB package is intended to bolster foreign exchange reserves rather than finance development projects.
Dr. Niaz emphasized that there was no fault on the part of the federal government or its board nominee since the extension was permitted under ADB rules. When India requested the postponement, Pakistan raised the issue at the highest levels within the ADB.
The bank’s management and most board members supported Pakistan’s stance, leading to the rescheduling of the board meeting.
Pakistan maintained that international institutions should not be used as venues for settling political disputes among member countries.
The government has also reached agreements with two foreign commercial banks for a $1 billion loan, backed by ADB guarantees, due to Pakistan’s low credit rating. The final loan terms and disbursement await approval of the $500 million ADB guarantee.
With the $500 million guarantee, Pakistan can borrow up to $1.5 billion in foreign commercial loans, according to sources.
Pakistan’s gross foreign reserves currently stand at $11.4 billion, with the government aiming to increase them to over $14 billion by the end of June. This rise will be supported by better-than-expected remittances, the new ADB-backed $1 billion commercial loan, and refinancing of Chinese loans.
The ADB will charge a nominal upfront fee for providing the guarantee. Despite a recent rating upgrade by Fitch from “substantial default risk” to “high risk of default,” Pakistan’s credit rating remains low at B negative, two notches below investment grade.
For the current fiscal year, Pakistan has budgeted $3.8 billion in foreign commercial loans, but disbursements have been slow due to the poor credit rating. China is expected to refinance $3.7 billion in commercial loans by the end of next month.
The $300 million ADB policy loan is the second tranche under the Resource Mobilization program, which the government plans to use to improve tax collection by the Federal Board of Revenue. However, the decision to take loans for such purposes has faced criticism.
Pakistan has fulfilled all prerequisites for securing the second loan tranche from the ADB.
Requests for comments from the ADB’s local office about the rescheduling and whether the institution can be used by member countries for political objectives went unanswered.
Sources familiar with ADB operations revealed that any member, including Pakistan, can request a delay of up to two working days to conduct further due diligence on a loan.
