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Pakistan poverty alleviation fund project

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Objective of the project is to alleviate poverty by improving access of rural and urban poor to economic resources and services

From YOUSAF RAFIQ
Special correspondent, Islamabad
Sep 20 - 26, 1999

The World Bank and the Government of Pakistan on July 7, 1999, entered into an agreement for International Development Association (IDA) program assistance involving SDR 66.5 million. The main objective of the programme assistance is to alleviate poverty, and to increase incomes of the poor households by providing loans and technical assistance, increasing access of the poor to physical infrastructure and enhancing institutional capacity of NGOs and Community Organizations. The Pakistan Poverty Alleviation Fund Company (PPAFC) will be responsible for implementation of the programme.

Under the programme, the World Bank has agreed to extend a multi currency loan equivalent to SDR 66.5 million to Government of Pakistan. The loan is for a period of 34 years (inclusive a grace period of 10 years). The bank will not charge any interest on the loan but will receive a commitment fee on the principal amount not withdrawn at the rate not exceeding one half of one per cent per annum. The bank will also charge a service fee at the rate of three forth of one per cent per annum on the principal amount. The Credit Agreement will become effective upon signing of Subsidiary Loan Agreement between Government of Pakistan and PPAFC. The closing date of the Credit Agreement is December 31, 2004.

The foreign currency available under the loan will be used to cushion GOP's foreign currency reserves. A part of the loan proceeds (equivalent SDR 33.2 million) will be passed on to PPAF as a loan to be repaid in 23 years including a grace period of 8 years. The PPAF shall pay GOP the interest at the rate of three-forth of one per cent per annum on the principal amount of credit withdrawn and outstanding. PPAF shall also pay GOP commitment fee on the principal amount of the credit not withdrawn at the rate not exceeding one half of one percent. The remaining amount of proceeds of the loan equivalent SDR 33.3 million will be passed on to PPAF as a grant on non-reimbursable basis. A major portion of grant (SDR 20 million) will be spent through POs/COs on small scale community infrastructure development projects as karezes, small dams, water courses, link roads, bridges, wells and tube-wells etc.

The sources say that the proposed re-lending terms of the proceeds of the loan to PPAFC widely deviate from the Standard Re-lending Terms of the GOP. The Standard Terms of the Government entail that the GOP will charge interest rate of 8 per cent and additional 6 per cent will be charged on account of exchange risk fee and that maximum re-lending rate for the final borrower will be 17 per cent inclusive of exchange risk fee. The Standard Terms further state that the maximum period of the loan shall be 15 years including a grace period of 2 years.

According to the Ministry of Finance, the PPAFC is a major initiative of the GOP, assisted by IDA of the World Bank, for eradication of poverty in the country. The IDA credit is interest free long tenure facility that will also augment foreign currency reserves of the Government of Pakistan. Therefore, the Government may like to be flexible in re-lending terms of the proceeds of the loan.

The objective of the project is to alleviate poverty by improving the access of the rural and urban poor to economic resources and services. The project will take care of the financing of micro-projects to support income generating activities, including agriculture and livestock development, off-farm activities and micro-enterprises; and small scale community infrastructure development projects, including the development, construction and for improvement of karezes (indigenous irrigation channels), other irrigation channels, small dams, water courses, land-leveling, agro-forestry and water harvesting structures; bunds, check dams and other flood protection works; link roads, bridges, culverts, causeways and pony tracks; and, deep-wells, hand-pumps, tube-wells, water reservoirs, overhead tanks and gravity flow pipelines.

The project will also take institutional capacity building measures. It will strengthen the operational capacity of PPAF, through the provision of office buildings, equipment and vehicles, technical assistance for improving data management and financial systems and for carrying out studies, training and funding for incremental operating costs; and, Partner Organizations (PO), through the provision of equipment, training in implementing poverty alleviation [programs, with emphasis on community mobilization and participatory approaches, and funding for incremental costs.