Pakistan to receive $600m budgetary support from ADB

ISLAMABAD - The Asian Development Bank (ADB) has agreed to rescue Pakistan's new coalition government by providing emergency $600 million budgetary support aimed at improving the country's fiscal deficit position.
Pakistan has sought the disbursement of over $600 million till June 30 this year out of $1.9 billion ADB assistance finalised for the year 2008, it is learnt.
ADB Country Director for Pakistan Perter Fedon when contacted confirmed that the ADB has decided to help contain the fiscal target by extending "quick disbursements" to Pakistan before the end of the current financial year.
Responding to a question, he said that "several million dollars" will be disbursed to the new coalition government to help narrow the widening fiscal deficit. "We have been asked for this support and we have decided to oblige the new government," Fedon said.
But he avoided to give the exact amount and said that modalities were currently being finalised for disbursing the ADB assistance on emergency basis. However, he clarified that it was not a special assistance but a usual annual assistance which will be disbursed in the shape of a "quick tranches" to help overcome the budgetary problems of the government.
The ADB country director said that Pakistan was provided $1.9 billion each in 2007 and 2008 but for 2009, this lending level is expected to be enhanced to little over $2 billion.
Pakistan, he said, has become a biggest browner in the region while India and China remained second and third with proximately $2 billion and $1.5 billion respectively.
In reply to a question, he said Pakistan's lending level has increased from $800 million to about $2 billion in the last three years and that this substantial increase was due to improved implementation process of the government.
He also said that there were now less complaints about financial irregularities and mismanagement in the development projects being funded by the ADB. The implementation procedure, he said, has improved due to holding a monthly meeting with the officials of the Economic Affairs Divisions (EAD).
"Those development projects which are not performing well, will not be offered funds and this is how certain improved mechanism can be ensured", the ADB country director said.
Fedon cited the example of Karachi Mega City Project which could not be undertaken so far as certain technical issues were still to be sorted out. "The bank had approved $800 million for this project and unless the provincial government makes sure that every thing is okay and fine in terms of implementation, no funds will be disbursed," he said.
Similarly, he said that unless there will be full ownership for Karachi water scheme programme, no funding will be made available by the bank. "This is a complex undertaking and since Karachi is very messy, we have to be very careful about the projects being supported by us," he added.
To a question, he said that ADB has adopted the policy of no extension to any project and this was possible because of ensuring a strict monitoring. But in certain exceptional case, this extension is allowed by the bank.
He also believed that over the years, Pakistan has improved its financial discipline which was helping it to seek hassle free borrowing from bilateral and multilateral donors.
"We have a pretty elaborate procedure to ensure transparency," Fedon said adding that each project contract is seen and evaluated three to four times before ADB gives No Objection Certificate (NOC).
"We have no flexibility in this regard," he said adding that Pakistan is doing relatively well compared to Asia and Pacific countries in terms of transparency. The ADB, he pointed out, has become the biggest development partners of Pakistan.
Another serious challenge for the new government, he said, was the rising prices especially that of food products. All the nation states, he said, were facing the problem of increasing food prices and this was primarily due to high international prices now touching $120 a barrel.
Pakistan's annual oil import bill, he said, has increased from $3 billion to $10 billion and this is causing price hike in the country.
Asked about the energy problems and looming power crisis, he said that ADB had offered $2 billion for a three year programme (2006-08) to help improve the situation. Last year distribution companies were assisted both financially and technically and in 2008, transmission companies were being provided $500 million.
However, he said, that the solution lies in the setting up of more thermal power plants to generate adequate electricity. He said that shortage of daily 3,000MW of electricity is a serious issue and needed all the attention of the government as well as the private sector. In this behalf, he called for settling tariff issues to facilitate the establishment of new power plants across Pakistan. It takes about two to two and half years to set up a thermal power plant, while it takes a long time to establish hydel power station to generate electricity," he said advising the government to urgently work out the related issues.
He, however, said, donors especially ADB was not against hydel power projects including Kalabagh and Bhasha dams. "You have plenty of water and you need dams and we can provide all possible financial assistance for this purpose," he said.
To a question, he said that there was a need for structural transformation of the country's 70 per cent exports which were coming from the textile sectors. The textile sector, he said, was not competitive and needed diversification. He said high dependence on textile sector was not a wise thing and that other sectors should also be provided support to excel.
He also said that low agriculture production seems to be a huge problem in terms of affordability and long-term sustainability. He was of the view that unused agriculture potential should be explored and that tax on agriculture income should be levied by the coalition government.
Similarly, he said services sector should also be taxed to receive adequate revenues which will also eventually address the problems of increased fiscal deficit. The bank, he said, has given recommendations to the government to levy tax on agriculture income and services sector.
He said revenues and exports should be enhanced to avoid witnessing the fiscal deficit to irreparable level. "Also you need to increase your foreign direct investment to finance this deficit."