ISLAMABAD – Pakistan’s foreign exchange reserves would surge to nearly $11 billion by the end of current month after receiving a loan from Asian Development Bank (ADB) and a tranche from International Monetary Fund (IMF) that is likely to be approved in next couple of weeks.
The executive board of the IMF is likely to meet before Christmas to consider approving second tranche worth $450 million for Pakistan. The IMF had visited Islamabad for the first review under extended fund facility (EFF) from October 28 to November 8 wherein it showed satisfaction over the economic performance of the country. The IMF praised to authorities for over-performing on first quarter targets that has pave the disbursement of $450 million.
Meanwhile, the ADB on Friday had approved two different loans for Pakistan worth of $1.3 billion. The ADB has approved $1 billion in immediate budget support to Pakistan to shore up the country’s public finances and help strengthen a slowing economy. Meanwhile, the ADB has also approved a $300 million policy-based loan that will help the Government of Pakistan to address financial sustainability, governance, and energy infrastructure policy constraints in Pakistan’s energy sector.
The inflows of loans from ADB and IMF would increase the country’s foreign exchange reserves and reducing pressure on the local currency. The foreign reserves held by the country stood at $15,993.2 million on 29-November 2019. The break-up of the foreign reserves showed that foreign reserves held by the State Bank of Pakistan are $9.113 billion and foreign reserves held by commercial banks are $ 6.88 billion. The inflows of ADB and IMF loans would take the SBP held reserves to $10.86 billion by the end of current month.
Loan signing agreement
Government of Pakistan on Monday signed a loan agreement worth USD 1.3 billion with Asian Development Bank for budgetary support and reforms. Hammad Azhar, Minister for Economic Affairs, witnessed the loan signing of two program loans amounting to USD 1.3 billion between the Government of Pakistan and the Asian Development Bank. The loan agreements were signed by Dr Syed Pervaiz Abbas, Secretary, Economic Affairs Division, and Ms. Xiaohong Yang, Country Director, Asian Development Bank (ADB).
Under Special Policy-Based Loan (SPBL) Facility, Asian Development Bank has committed to provide USD 1 billion for Economic Stabilization Program. This program aims to improve exchange rate management; strengthen public financial management to mobilize more revenues; restore allocative efficiency of scarce public resources; address the power sector pricing issues; and reduce the social impacts of macroeconomic stability measures by improved targeting and transparency of existing social protection programs.
Out of total USD$1.3 billion loan, US$ 300 million is allocated to Energy Sector Reforms Financial Sustainability Program (Subprogram 1). It will address issues regarding energy shortfalls, technical lacunas and policy related shortcomings in Pakistan’s energy sector. The program will help to secure financial sustainability by controlling new accumulation of circular debt; strengthen governance by rationalizing competitive market roadmap, separation of policy and regulatory functions in hydrocarbons sector, appointment of appellate tribunals, implementation of multi-year tariffs and unbundling of gas sector; and reinforce infrastructure improvements through integrated planning to facilitate public and private sector investment across the energy supply chain.
Hammad Azhar, Minister for Economic Affairs, acknowledged ADB’s continued support for Pakistan. The Minister expressed that ADB’s policy-based lending will not only strengthen the foreign exchange reserves but will also provide fiscal space to the government for implementing its reforms agenda and boost economic activities in the country. The provision of program lending by Asian Development Bank is indicative of government successful policies for macroeconomic stability and reforms, he added.
Ms Xiaohong Yang, Country Director, stated that ADB is one of the leading development partners of Pakistan. ADB fully supports the government’s development vision and policies. She expressed that ADB is providing its support to the government for policy reforms and project financing in the key priority areas such as energy, road, social sector, water irrigation and urban services. ADB is committed to provide wide-range financing options to strengthen Pakistan’s economy and reduce the risk of external economic shocks, she added. She also reiterated ADB’s strong commitment to further strengthen and expand its partnership with Pakistan.