Pakistan to Get A $2.5 billion Tranche under Counter-Cyclical Finance Facility

Pakistan is currently in a burning need of foreign loans due to depleting foreign exchange reserves linked with rising repayments and import financing requirements. The rupee-dollar parity fell over the lowest ever level of Rs191.77 to a dollar on Thursday amidst uncertainty in the market over the fate of the IMF programme (Express Tribune, 2022).

To get a foreign tranche like the ADB finance facility, Pakistan must meet some requirements for qualifying for the facility that has been designed to support the member countries in dealing with the challenges posed by the Covid-19 pandemic.

Recently, Asian Development Bank (ADB) indicated providing an additional $2.5 billion loan to Pakistan for the next fiscal year, from which $1.5 billion to $2 billion can be available before the end of the calendar year. About $1.5 billion will be provided under the Counter-Cyclical Finance Facility and another roughly $400 million under energy sector policy loans. Pakistan can only avail of this financial support if the government secures a good economic health certificate from the International Monetary Fund (IMF).

However, approval of the $1.5 billion loans by the ADB will require sustainability in Pakistan’s debt burden, and it should not be following imprudent fiscal policies. Also, the government needs to submit a sound macroeconomic plan to the ADB board, which means a departure from the existing expansionary fiscal policies and withdrawal of the fuel subsidies.

Moreover, an assessment letter from the IMF validates that the country’s economic policies are on the right track. However, it will be a challenging task for Pakistan to secure the $1.5 billion facility on priority due to the requirements and a slow-moving bureaucracy in the Ministry of Economic Affairs.

ADB is aligned with Pakistan’s development vision to promote its inclusive economic growth. The Development Bank has committed to promoting the country’s structural reforms, strengthening Pakistan’s economy, and reducing the risk of external economic shocks.