Asian Development Bank approves $695m financing for Pakistan

The Manila-based lending agency Asian Development Bank (ADB) approves $695m financing for Pakistan to support sustainable development. It comes days after caretaker finance minister Shamshad Akhtar declared public debt to be “unsustainable”.

Pakistan has obtained a $300 million loan at market rates from ADB to increase tax compliance which shows an obvious difference between the government’s actions and words.

ADB approves $659m financing for Pakistan
Days after Finance Minister Shamshad Akhtar declared public debt as "unsustainable", Pakistan secured an expensive $300 million loan at market rates from the Asian Development Bank to improve tax compliance, showing a glaring contrast…
— Republic Policy (@republicpolicy) December 7, 2023

However, ADB has not given a loan to Pakistan for development reasons. Rather, these funds will be used for budget funding to implement changes in Pakistan’s revenue and expenditure framework.

ADB approved a $695 million funding package for Pakistan divided into three loans. According to a press release from ADB, the first loan includes $300 million for strengthening domestic resource mobilization.

The second loan includes $275 million for restoring schools devastated by the terrible August 2022 floods. And third loan involves $80 million for increasing agricultural production to promote food security.

Asian Development Bank approves $695m financing for Pakistan

Although, the announcement of ADB came as the World Bank’s Debt Management and Sustainability Mission met with the finance minister to examine the debt management of Pakistan.

Dr. Tauqeer Hussain Shah, the Executive Director (designate) World Bank, called on the Minister for Finance, Revenue, and Economic Affairs, Dr. Shamshad Akhtar, @1sakhtar at the Ministry of Finance. (1/2) pic.twitter.com/vE4Le49ZjF
— Ministry of Finance, Government of Pakistan (@Financegovpk) November 2, 2023

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Dr.Shamshad claimed last week that Pakistan’s debt burden has become “unsustainable”. However, the Vice President of the World Bank Martin Raiser disagreed with this claim and described the country’s debt as “sustainable”.

Meanwhile, ADB is already paying half of the debt management office’s salaries which the finance ministry of Pakistan should ideally fund. This loan will cost Pakistan over a 6% interest rate. However, interest rates in international markets are likely to fall. Thereby it will lower the rates of this loan too.

Despite declaring the debt unsustainable, Pakistan has contracted one of the multilateral lenders’ expensive loans which typically provide funding at concessional rates.

According to ADB documents, the $300 million loan will have a three-year grace period. However, the loan term of 15 years of ADB is also comparatively shorter than its prior funding to Pakistan.