ADB approves $1.5 billion loan for Pakistan

 ADB loan will be used to provide social protection, promote food security and support employment

Asian Development Bank (ADB) has approved $1.5 Billion loan for Pakistan. This is the largest loan tranche that the ADB has ever given to Pakistan.  This loan will help to calm down jittery markets and worried investors. Pakistan is desperately needed to build its foreign currency reserves to stablise the Pak Rupee.

According to the statement issued by ADB, The ADB’s board has approved a financing of $1.5 billion to help Pakistan provide social protection, promote food security and support employment for its people amid devastating floods and global supply chain disruptions.  

The ADB said that the loan provided under the Building Resilience with Active Countercyclical Expenditures (BRACE) programme would help fund the government’s $2.3 billion countercyclical development expenditure programme designed to cushion the impact of external shocks, including the Russian invasion of Ukraine.

Pakistan and the ADB will sign a loan agreement on Monday and the money will also be transferred next week, said Ishaq Dar, Federal Finance Minister while welcoming the ADB’s decision.

The $1.5 billion loan is equal to 20% of the country’s gross foreign exchange reserves of $7.5 billion, underscoring its importance for Islamabad that has been critically reviewed in recent days by the international credit rating agencies.

It is the largest loan tranche that the ADB has ever provided to the country. Unlike the Breton Woods Institutions – the World Bank and the International Monetary Fund (IMF), the ADB has traditionally adopted a positive approach in its dealings with Pakistan.

BRACE programme is part of ADB’s countercyclical support facility, which does not carry conditions that are part of the traditional lending portfolio. The loan has been obtained to cope with the worsening macroeconomic crisis compounded by the Russia-Ukraine war and devastating floods.

The ADB will provide $1.25 billion out of its ordinary capital resource at the Secured Overnight Financing Rate (SOFR) plus 0.75%, plus a surcharge. Current SOFR is 2.28%, which will take the total interest rate to over 3%.

The $1.25 billion loan has been secured for seven years. Another $250 million is being obtained at a rate of 2% for 25 years.

“Pakistan’s recovery from the Covid-19 pandemic has been impeded by external shocks,” said ADB Director General for Central and West Asia Yevgeniy Zhukov. Zhukov will visit Pakistan next week to oversee the signing ceremony.

Increasing business costs and rising living expenses are affecting millions of Pakistanis, especially the poor and vulnerable, according to the lender.

It said that the ADB’s programme would help the government manage the impact of high prices, increasing food insecurity, slowing business activity, and reducing income for the vulnerable groups, many of whom were also reeling from the devastating floods.

The ADB’s assistance will help to expand the number of families receiving cash transfers from 7.9 million to 9 million, increase the number of children enrolled in primary and secondary schools, and enhance the geographic coverage of health services and nutritional supplies for the pregnant and lactating mothers and children below two years.

                                                                     Insight247.news