ISLAMABAD: The government of Pakistan on Monday signed a loan agreement worth $1.3 billion with the Asian Development Bank (ADB) for budgetary support and power sector reforms.
Federal Minister for Economic Affairs Hammad Azhar was present on the occasion, while Economic Affairs Division Secretary Syed Pervaiz Abbas and ADB Country Director Xiahong Yang signed the agreement, according to a press release.
READ MORE: ADB signs $200mn loan for budgetary support in Pakistan
The Govt of Pak & ADB have scaled up their partnership today with the signing of USD 1 Bn special policy based loan for macroeconomic stability and USD 300 ml for energy sector and financial sector reforms.
Single largest disbursements in one day to any country by ADB. pic.twitter.com/U3B1eZT6Nx— Hammad Azhar (@Hammad_Azhar) December 9, 2019
Under the agreement, ADB has committed to providing $1 billion towards the Economic Stabilisation Programme which aims to improve exchange rate management, strengthen public financial management.
READ ALSO: Macroeconomic stability restored, Hafeez Shaikh tells ADB Forum
Restore allocative efficiency of scarce public resources and reduce the social impacts of macroeconomic stability measures, said the press release.
Out of the total $1.3 billion loan, $300 million have been earmarked for reforms in the energy sector and the Financial Stability Programme.
This aims to address energy shortfalls as well as policy-related shortcomings in the country’s energy sector. The Govt of Pak & ADB have scaled up their partnership today with the signing of USD 1 Bn special policy-based loan for macroeconomic stability and USD 300 ml for energy sector and financial sector reforms.
In a report issued in Sept, the ADB reaffirmed that the country’s economy is expected to grow slower than last year, with GDP growth projected at 2.8 per cent in the fiscal year 2020.
The report noted that to restore macroeconomic stability, the government plans to catalyse significant international financial support and promote sustainable and balanced growth under a 3-year economic stabilization and reform program with the International Monetary Fund (IMF).
READ MORE: ADB approves $2.7 bn financing for Pakistan
Fiscal consolidation under the program aims to reduce the large public debt while expanding social spending, establish a flexible exchange rate regime to restore competitiveness, and rebuild official reserves.
The IMF economic reform program envisages a multiyear strategy for revenue mobilization to pare public debt to a sustainable level. The budget assumes tax revenue increased to equal 14.3% of GDP.
With non-tax revenue projected at 2.3% of GDP in FY2020, total revenue is expected to increase to 16.6% of GDP.
Given the need for the authorities to address sizable fiscal and external imbalances, the economy is expected to slow further, with GDP growth projected at 2.8% in FY2020. Fiscal adjustments are expected to suppress domestic demand, and demand contraction will keep growth in manufacturing subdued.
However, agriculture is expected to recover from weather-induced contraction this year, with major incentives in the government’s agriculture support package included in the budget for FY2020.
READ ALSO: ADB approves $200 million loan to Pakistan
