ISLAMABAD:
The Asian Development Bank (ADB) has postponed the approval of a $800 million financing package for Pakistan for five days on the request of India that sought time to evaluate the loan documents, exposing flaws in the lender’s rule book that allows such extensions.
The government officials told The Express Tribune that the ADB board meeting had been convened for May 28th to approve the $300 million budget support loan and another $500 million in guarantees to obtain foreign commercial loans.
The meeting did not take place on Wednesday and Pakistan had been informed in advance. The meeting has been rescheduled to June 3, the government officials added.
When contacted, Economic Affairs Secretary Dr Kazim Niaz confirmed that the ADB board meeting was scheduled for May 28 but has been postponed for five days on the request of the Indian executive director.
The secretary said that under the ADB rules any director can seek a one-time extension on the date and India took the benefit of this rule. The ADB country office did not respond to a request for comment on the development.
The Indian move came after it failed to block the approval of the $1 billion worth second loan tranche by the International Monetary Fund. The postponement by the ADB underscores that the Pakistani representatives in the World Bank, the IMF, the Asian Infrastructure Investment Bank and the ADB will have to adopt a proactive approach to protect the country’s economic interests.
After facing defeat at the hands of the armed forces in the battlefield, India has started lobbying against Islamabad’s economic interests. The five-day postponement has not impacted Pakistan’s external financing plans and the money is expected to flow in the central bank’s accounts after the approval by the board on June 3rd.
Independent economic analysts say that the government should reduce its reliance on the foreign loans, particularly on budget support loans. The ADB’s $800 million package is not meant for any development purposes and the money and guarantees will be used to build the foreign exchange reserves.
Dr Niaz said that there was no lapse on part of the federal government or its nominee in the board, as the ADB rules allowed the extension. He said that when India sought the postponement of the board meeting, the government took up the matter at the highest level in the ADB.
The management and almost all the board directors had supported the view point of Pakistan, which resulted in taking the next date for the board meeting, said the secretary.
Pakistan’s view was that the international forums cannot be used for settling the political scores of the member countries, he added.
The government had reached an understanding with two foreign commercial banks for a $1 billion loan on the back of the ADB’s guarantees due to its low credit rating. The final term sheet and loan disbursement are subject to the approval of the ADB’s $500 million guarantee.
Pakistan can borrow up to $1.5 billion foreign commercial loan against the $500 million guarantee, said government sources.
Pakistan’s gross reserves stand at $11.4 billion, which the government wants to increase to over $14 billion by the end of June. The reserves will rise on the back of better-than-expected remittances, $1 billion ADB-backed new commercial loan and the refinancing of Chinese loans, the sources said.
The ADB will charge a nominal upfront fee for giving the guarantee. Despite a recent rating upgrade, Pakistan’s credit rating still remains low at B negative, which are two notches below the investment grade. Fitch upgraded Pakistan from a substantial default risk to a high risk of default rating.
For the current fiscal year, the government has budgeted $3.8 billion in foreign commercial loans but the disbursements remain low due to the low credit rating. China is expected to refinance the $3.7 billion commercial lending before the end of next month.
The ADB’s $300 million policy loan is the second tranche under the Resource Mobilization programme, which the government wants to take for improving the tax collection by the Federal Board of Revenue. However, there has been criticism for taking loans for purposes, which do not require foreign funding.
Pakistan has met all the prior conditions for securing the second loan tranche from the ADB.
The ADB’s local office spokesperson had been requested to comment about the change in schedule of the board meeting and whether the ADB can allow its platform to be used by the member countries for achieving their political objectives.
The people privy to the working of the ADB said that any member, including Pakistan, can request a delay for two working days to undertake more due diligence for any loan.
