ADB agrees $600m “fiscal breathing space” loan to Pakistan

28 Jun 16

The Asian Development Bank has approved a loan of $600m to Pakistan reform its public sector, it was announced today.

The funding will be provided in two batches of $300m and is designed to Pakistan enact major structural reforms to boost the performance and financial stability of its public sector enterprises.

Werner Liepach, country director for the bank’s Pakistan Resident Mission, said the funding would give Pakistan some fiscal space to make important investments.

He said: “Many large public sector enterprises rely on fiscal transfers from the federal government just to run their day-to-day operations, and there is no available funding for longer term capital spending and development.

“This assistance will give the government the ‘fiscal breathing space’ it needs to proceed with measures to create more sustainable business, delivering more efficient and cost-effective services to the Pakistani public, and will eventually free up public funds for vital social sector spending.”

At present, the Pakistan government owns 191 public sector enterprises employing around 420,000 workers. But according to the ADB, a fiscal consolidation drive to improve federal finances has prevented the government from making important reforms in this area, such as reducing pension liabilities.

ADB financing will be used to create a cost fund to “manage huge unfunded pensions and other retirement liabilities of workers”, which present a “serious threat” to Pakistan’s public sector, the bank said.

Power distribution companies and Pakistani Railways are also among the organisations that need “immediate financial support” to initiate reforms.  

Pakistani Railways will receive support to strengthen auditing and accounting, and funding will also be used to improve the transparency of the public sector and strengthen corporate governance.

This funding is part of a coordinated donor packaged arranged by the Asian Development Bank, the International Monetary Fund and the World Bank. The programme consists of two batches of $300m and will run until 2018.

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