ADB'S PACKAGE FOR PAKISTAN

Priority will be on rehabilitating existing infrastructure

From Shamim Ahmed Rizvi,
Islamabad

Oct 04 - 10, 2004

The Asian Development Bank (ADB) has come out with a handsome package of $2 billion (1.96 to be exact) in development assistance to Pakistan for the next two years (2005 and 2006). The ADB's Board of Directors on Monday last approved the two-year Country Strategy and Programme (CSP) update which lays great stress on infrastructure projects as these greatly import the growth and poverty reduction.

Priority will be on rehabilitating existing infrastructure in irrigation, roads, and urban centers, as well as addressing critical gaps in the power sector. The Asian Bank says the updated strategy would put new emphasis on assisting infrastructure projects with greatest impact for growth and poverty reduction over the next two years.

ADB will also promote public private partnerships for infrastructure development through a combination of loan and risk mitigation products. The CSP update, covering 2005 and 2006, earmarks $1.96 billion for 23 loans over the two years, exceeding the $1.72 billion for 17 loans allocated for the same period in previous CSP approved in 2003.

Final lending amounts would, however, depend on country performance and resource availability. Among the loan projects planned in 2005 are those to develop renewable energy, rural sector development and drought mitigation and devolved social services in Balochistan, resource management in Punjab, governance in the Federally Administered Tribal Areas (FATA), basic urban services in Sindh, and sub-regional transport connectivity.

The following year sees loans planned in Punjab to develop irrigated agriculture, resource management and local justice; coastal and inland communities in Sindh; governance in FATA and national power transmission, social health insurance and mega-city projects. "ADB supports the government's shift in emphasis toward higher sustained growth to ensure that the benefits of structural reforms that are taking place reach the poor," said, Marshulk Ali Shah, Country Director at ADB's Resident Mission.

He said the envisaged increase in lending levels is consistent with the continued improvement in Pakistan's debt absorption capacity and the government's new priorities.

Loans from ADB's ordinary capital resources will be used for infrastructure sector projects and provincial resource management programmes. Social sector projects and those aimed directly at poverty reduction, including rural development, will be financed through ADB's concessional lending instrument, the Asian Development Fund (ADF).

The bank says Pakistan's economic performance has shown continued improvement, with gross domestic product growth reaching 6.4 percent in financial year 2004, compared with 5.1 percent the year before. At the same time, fiscal deficit has fallen to 3.3 percent of GDP and there has been robust growth in exports (10 percent) as well as a high level of remittances of $3.9 billion in 2003-04.

The approved CSP aims to support poverty reduction in Pakistan through a focus on three areas: supporting good governance (devolution, legal, judicial and police reforms); sustainable pro-poor growth (infrastructure, rural development, and job creation); and social development (education, water supply and sanitation, and social protection). The loans would be supported by a technical assistance program totaling $10.7 million for 24 projects during 2005-06. This will support ADB's lending assistance, enhance development effectiveness, and assist in capacity building and strengthening institutions. As of the end of 2003, ADB had approved a total of 202 loans for Pakistan amounting to $12.45 billion. ADB has also provided support for 271 technical assistance projects totaling $114.8 million.

The approval of the $1.96 billion CSP by the ADB reflects a great deal of confidence in our capacity to absorb such a huge amount during a short period of only two years and the ability of the country to pay back the principal amount with interest when it is due. Such a perception is vastly different from the one we had encountered only a few years ago when the major IFIs avoided lending to us because of poor management of the economy and high country risk due to the uncertainty of servicing foreign debt. This change in the behavior of multilateral financial institutions speaks for the improvement in the economic health of the country. Made possible by introducing a series of reform measures during the last few years, and it is of course welcome. The purposes for which the resources are being made available are also quite commendable. The funds earmarked under CSP would be used for supporting good governance (devolution, legal, judicial and policy reforms), sustainable pro-poor growth (infrastructure, rural development and job creation) and social development (education, water supply, sanitation and social protection) and, therefore, could go a long way in alleviating poverty in the country.

Now there is a dire need to ensure that the package offered by the ADB is utilized efficiently and with the highest level of commitment. Otherwise we are afraid that the present CSP could also burden the country with more external debt without making a visible impact on the lives of ordinary people. Sadly, the experience of the past does not inspire much confidence in this regard. Overall, the country is indebted to the tune of about $34 billion to the foreign lenders.

As of the end of 2003, ADB alone had approved a total of 202 loans for Pakistan amounting to $12.5 billion, besides supporting 271 technical assistance projects totaling $114.8 million. It is apprehended that a substantial percentage of this amount had either been improperly utilized or pocketed by the people responsible for implementing the projects. On the other hand, multilateral institutions remain preferred creditors and there is no way to avoid borrowing from them and then repaying the loans. They are in the business of lending and would like countries like Pakistan to borrow for one reason or the other. Keeping all these factors in view, it would be better for the government to be careful and borrow only for the projects, which are badly needed and could be efficiently managed so as to yield a high rate of return on the investment. Financing such projects from domestic resources to the maximum extent possible should, nonetheless, be considered as a more advisable option. For, government's overall strategy of foreign borrowing would appear to be very perplexing to most of the people. It is getting rid of IMF rather contemptuously and on a high note of propaganda, but also borrowing heavily from ADB for various projects, which would equally increase our foreign indebtedness. Continued dependence on foreign sources of financing would also appear to belie the claims of the government about economic recovery and adequate availability of foreign exchange resources for finance various needs of the economy.