The Asian Development Bank (ADB) has decided to delay the approval of an $800 million financing package for Pakistan by five days, following a request from India, which needed more time to review the loan documents. This situation has highlighted some gaps in the lender’s guidelines that permit such extensions.
According to government officials who spoke to The Express Tribune, the ADB board meeting was originally set for May 28 to approve a $300 million budget support loan along with an additional $500 million in guarantees for securing foreign commercial loans.
However, the meeting didn’t take place as planned on Wednesday, and Pakistan was informed ahead of time. It has now been rescheduled for June 3, as confirmed by the officials.
Economic Affairs Secretary Dr. Kazim Niaz acknowledged that the ADB board meeting was indeed slated for May 28 but was postponed for five days at the request of the Indian executive director. He explained that ADB rules allow any director to request a one-time extension, which India took advantage of. The ADB country office has yet to respond to inquiries regarding this situation.
This Indian request came after their unsuccessful attempt to block the approval of a $1 billion second loan tranche from the International Monetary Fund. The ADB’s postponement serves as a reminder that Pakistani representatives at the World Bank, IMF, Asian Infrastructure Investment Bank, and ADB need to take a more proactive stance to safeguard the country’s economic interests.
Following their defeat on the battlefield, India has ramped up efforts to undermine Islamabad’s economic position. Fortunately, this five-day delay hasn’t derailed Pakistan’s external financing plans, and the funds are still expected to be deposited into the central bank’s accounts once the board gives its approval on June 3.
Independent economic analysts are suggesting that the government should cut back on its dependence on foreign loans, especially those that support the budget. The $800 million package from the ADB isn’t intended for development projects; instead, it’s aimed at bolstering the country’s foreign exchange reserves.
Dr. Niaz pointed out that there was no oversight failure on the part of the federal government or its representative on the board, as the ADB’s rules permitted the extension. He mentioned that when India requested to delay the board meeting, the government escalated the issue to the highest levels within the ADB.
According to the secretary, the management and nearly all board directors backed Pakistan’s stance, which led to rescheduling the board meeting.
He added that Pakistan believes international forums shouldn’t be used to settle political disputes among member countries.
The government has come to an agreement with two foreign commercial banks for a $1 billion loan, backed by the ADB’s guarantees, due to its low credit rating. The final terms and the loan disbursement will depend on the ADB’s approval of the $500 million guarantee.
Sources from the government indicated that Pakistan can secure up to $1.5 billion in foreign commercial loans against the $500 million guarantee.
Currently, Pakistan’s gross reserves are at $11.4 billion, and the government aims to boost this to over $14 billion by the end of June. This increase is expected to come from better-than-anticipated remittances, the new $1 billion ADB-backed commercial loan, and the refinancing of Chinese loans, according to the sources.
The ADB will impose a nominal upfront fee for providing the guarantee. Even with a recent upgrade in ratings, Pakistan’s credit rating remains low at B negative, which is two notches below investment grade. Fitch has upgraded Pakistan from a substantial default risk to a high risk of default rating.
This fiscal year, the government has set aside $3.8 billion for foreign commercial loans, but disbursements are lagging due to a low credit rating. China is anticipated to refinance $3.7 billion in commercial loans before the end of next month.
The ADB’s $300 million policy loan marks the second tranche of the Resource Mobilization program, which the government aims to utilize to enhance tax collection through the Federal Board of Revenue. However, there has been some backlash regarding the decision to take loans for purposes that seemingly don’t require foreign funding.
Pakistan has fulfilled all the necessary conditions to secure the second loan tranche from the ADB.
A spokesperson from the ADB’s local office was asked to comment on the rescheduling of the board meeting and whether the ADB would permit its platform to be used by member countries for political aims.
Sources familiar with the ADB’s operations mentioned that any member, including Pakistan, can request a two-day delay to conduct further due diligence on any loan.
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Q1. Why was the approval of the $800 million financing package delayed?
The Asian Development Bank postponed its board meeting, originally scheduled for May 28, to June 3, following a request from India. The Indian executive director needed more time to review the loan documents, a move permitted under the bank’s guidelines.
Q2. What does the $800 million package include?
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$300 million: Budget support loan (policy-based)
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$500 million: Guarantees to help Pakistan secure foreign commercial loans
Q3. How did Pakistan respond to the delay?
Government officials acknowledged the delay and confirmed that Pakistan was informed in advance. They escalated the issue to senior levels within the Asian Development Bank, where most board members supported Pakistan’s position.
Q4. Was there any failure on the part of Pakistan’s representatives?
According to Economic Affairs Secretary Dr. Kazim Niaz, there was no oversight failure, as the rules allowed for a one-time extension requested by India.
Q5. What role does India play in this situation?
India’s request came after it unsuccessfully tried to block a $1 billion loan from the International Monetary Fund to Pakistan. The delay highlights how member countries can use international financial platforms to pursue political interests, a practice Pakistan opposes.
Q6. Will the delay impact Pakistan’s financing plans?
No. The five-day delay hasn’t derailed Pakistan’s plans. The funds are still expected to be deposited into the State Bank of Pakistan’s reserves once approved on June 3.
