Pakistan to get $1.5b loan from ADB at higher cost

Crisis-hit Pakistan may get $1.5 billion emergency loan from the Asian Development Bank (ADB)_ by which Islamabad hopes to cope with the worsening macroeconomic crisis amid the Planning Commission s concerns over unfavourable terms of the loan.

The Manila-based global lender is expected to approve relatively expensive financing for the $1.5 billion on October 21_ which is about a month behind schedule_ according to government sources.

The revival of the International Monetary Fund (IMF) programme has failed to stabilise the South Asian Country_ especially in light of the devastating floods that have further exacerbated economic conditions and deteriorated the external sector. The Central Development Working Party (CDWP)  the country s project sanctioning authority  on Wednesday gave a go-ahead to the concept clearance proposal for the $1.5 billion loan under the BRACE programme (Building Resilience with Active Countercyclical Expenditures). BRACE is part of ADB s Countercyclical Support Facility_ which does not carry conditions that are part of the traditional lending portfolio.

The CDWP s clearance will now help to complete the paperwork and send the loan request to the ADB board for approval. The loan has been sought to cope with the worsening macroeconomic crisis compounded by the Russia-Ukraine war and devastating floods. ADB will provide a $1.25 billion loan out of its ordinary capital resource at an interest rate of Secured Overnight Financing Rate (SOFR) plus 0.75%_ plus a surcharge. The current SOFR cost is 2.28%_ which will translate the total interest rate to over 3%_ one of the most expensive rates by the standards of the ADB and the World Bank.

The $1.25 billion is being secured for seven years_ which is also 18 years shorter than the standard loan tenure of ADB. Another $250 million is being obtained at a rate of 2% for a period of 25 years.

One of the primary advantages of the ADB and the World Bank lending is their longer tenure and low-interest rate  the two key factors that are missing in the new deal and duly pointed out by the Planning Commission.

The Planning Commission has objected to taking the $1.25 billion loan at a higher rate.  The rate is essentially a commercial loan. As Pakistan is already facing the economic crisis_ therefore_ sponsors may negotiate for the concessional loan_ showed the official documents. Finance Minister Miftah Ismail on Wednesday said_  The $1.5 billion ADB is lending will also help to get a $500 million loan from another bank; that has assured me to disburse the money subject to the approval of the $1.5 billion loan by the ADB board.