International loans / Grants Updates

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The country has signed new agreements worth $8.481 billion as commitments during the first half of the current fiscal year 2021-22 including $2.484 billion with foreign commercial banks, says the Economic Affairs Division (EAD).

The Division released the quarterly report on foreign economic assistance for July–December 2021, according to which new agreements signed during the first half of the current fiscal year included $1,956 million with multilateral development partners, $3000 million as safe deposits, $1000 million committed as of Eurobonds and $1,000 million from international capital market through tap-issuance.

Among the multilateral development partners, the banks emerged as the largest partner in terms of new commitments of foreign economic assistance including Islamic Development Bank with $834 million ($762 million as short term and $72 million as long term), ADB with $800 million (40 percent of multilateral partners) and the World Bank (16 percent of multilateral partners).

New commitments are the amounts of foreign economic assistance (FEA) which have been committed by the development partners during the observed time and are likely to be disbursed in the next five to six years. The new commitments are recorded by the EAD after the signing of the “financing instruments” with the development partners.

 

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Pakistan will receive $2.5b loan from China in June, finance ministry official confirmed Saturday.
The two countries have concluded the negotiations on the commercial loan and a formal agreement is expected in June.

Addressing a press conference Saturday, Finance Minister Miftah Ismail confirmed the development, adding that the country would soon hear a good news from China.

According to the finance ministry officials, the loan would help to shore up Pakistan’s foreign exchange reserves.

Pakistan’s total foreign exchange reserves fell to $16.14 in the week that ended May 20, according to the data shared by the State Bank of Pakistan.

 

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The World Bank’s board of executive directors earlier approved three financing projects in Pakistan worth $435 million as the country is experiencing a severe housing shortage.

According to the World Bank, “Pakistan’s estimated housing shortage is up to 10 million units, about 40% in urban areas.”

A critical aspect is the scarcity of property financing, with mortgage financing-to-GDP ratio of just 0.25%. It is one of the lowest in South Asia compared to Bangladesh (3%) and India (11%).

A large amount of property cannot be leased, meaning the pertinent building control authority does not recognise it.

Many sub-urban and semi-rural areas have a disproportionate share in low-cost rental housing, which the land development authorities do not recognise, meaning they also cannot be leased. However, due to lower rates and rents, many residents live in these areas.

In the case of urban areas, many properties cannot be leased because they do not have a completion certificate. This narrows down the option of leasing a property.

“Pakistan is mostly a cash market; a mortgage market was never developed largely due to the lax foreclosure laws and high interest rates,” said Ammar Habib Khan, Chief Risk Officer of Karandaaz Pakistan. “These factors make it unaffordable for mortgages.”

The option other than leasing a property is mortgaging it. Recently, the SBP increased the interest rate from 9.75% to the double digit at 12.25% and then to 13.75%.

With the interest rates in double digits or near double digits, mortgages are simply unaffordable. The inflation target of the central bank of Pakistan is 8-9%.

 

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Reliable access to schools, health facilities: World Bank approves $300m for upgrading roads in vulnerable districts of KP​

Tahir Amin
11 Jun, 2022

ISLAMABAD: The World Bank’s Board of Executive Directors has approved $300 million in financing to support Pakistan in upgrading rural roads to provide safe and reliable access to schools, health facilities and markets in the most vulnerable districts of Khyber-Pakhtunkhwa (KP).

The Khyber-Pakhtunkhwa Rural Accessibility Project (KPRAP) will provide safe and affordable transportation to primary and middle schools, especially for young girls, in remote areas which have the lowest enrollment and attendance rates. The project will also improve connectivity to markets and provincial centres to support income generation for rural farmers by reducing transportation costs and travel times.

“This project takes a climate-smart approach that builds resilience into the design of transportation infrastructure, which is critical to improving the reliability and connectivity of rural road networks in KP, especially for remote areas most at risk to extreme weather,” said Najy Benhassine, World Bank country director for Pakistan.

“By increasing year-round mobility and access to schools and health facilities, these investments will directly support human capital development and help farmers better cope with weather-related travel disruptions and economic shocks.”

KPRAP’s climate-resilient design includes all-weather roads that are safer and will help reduce accidents and fatalities. It will also generate savings from reduced maintenance and construction costs when a road fails.

“Access to basic education and health services is a major issue in KP due to travel disruptions and poor connectivity between districts and provincial centres, especially in the northern and southern areas,” said Lincoln Flor, task team leader for the programme.

“Providing safe, all-weather roads and reliable transportation services will help increase student attendance in to schools to address/reduce to low school enrollment and early dropouts. It will also address the lack of access to health facilities which is linked to higher mortality rates from preventable or otherwise easily treatable diseases.”
The KPRAP will benefit 1.7 million people who live in rural areas in KP and will improve income generation for women and men in agriculture, accounting for 20 percent of employment in the province.

It will also increase the regular attendance of up to 60,000 girls at the primary- and middle-school levels and support up to 5,000 new enrollments of girls from the most vulnerable communities in the KP.
Copyright Business Recorder, 2022

 

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Govt, World Bank ink $85mn housing finance project​

• Project will give access to affordable mortgages and increase home ownership among low-income households

BR
15 Jun, 2022

 

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The government of Pakistan on Monday signed a Debt Service Suspension Agreement (DSSA) with the French Republic, amounting to the suspension of loans worth $107 million under the G-20 Debt Service Suspension Initiative (DSSI) framework.

The amount, initially repayable between July-Dec, 2021 will now be repaid over a period of six years including one-year grace period in semi-annual instalments, said Pakistan's Economic Affairs Division.

“Due to the support extended by the development partners of Pakistan, the G-20 DSSI has provided the fiscal space which was necessary to deal with the urgent health and economic needs of the Islamic Republic of Pakistan,” read the statement

As per the ministry, the agreement was signed by Mian Asad Hayaud Din, Federal Secretary for Economic Affairs Division and H.E. Nicolas Galey, the Ambassador of the French Republic to Pakistan in Islamabad.

Pakistan has already signed agreements with France for suspension of $261 million.

Under the DSSI framework, the total amount of debt suspended and rescheduled covering the period from May 2020 to December 2021, stands at $3,688 million.

Pakistan has already concluded and signed 93 agreements with 21 bilateral creditors for the rescheduling of its debts under the G-20 DSSI framework, amounting to rescheduling of almost $3,150 million.

 

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Pakistan, France ink $22m agreement to restore Lahore Fort​

Project aims at promoting tourism, economic activities and building climate-change resilience

APP
July 07, 2022

The project aims at promoting tourism, economic activities and building climate change resilience. PHOTO: APP

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Pakistan and France have signed a €22 million (more than $22 million) financing agreement to extend technical and financial support for the renovation of Lahore Fort.

The government and the French Development Agency (FDA) signed the agreement on Thursday.
According to a statement released by the French Embassy, Heritage and Urban Regeneration in Lahore (HURL) project is part of the Walled City Lahore Master Plan aimed at the renovation and restoration of Lahore Fort, a symbol of the country's rich history.

The focus areas of the project will be to promote tourism, generate economic activities and build climate change resilience for local communities.

Speaking on the occasion, French Ambassador Nicolas Galey said: “France is proud to be part of the ambitious plan of the Punjab government to develop and promote the unique cultural heritage of Lahore."

He furthered that the rehabilitation and development of the Lahore Fort surroundings will be a powerful engine of sustainable economic development of the city by via increased tourist attraction and improved living conditions of the riparian populations.

The financing of the HURL project will span over five years and it is expected to contribute to the restoration and enhancement of the fort, strengthening its resilience.

The project will also generate additional income, and employment, especially for women and the transgender community.

It would also help expand tourism by including the neighbourhoods around the fort (buffer zone) as an interface for growth and building the capacity of the relevant authority and its partners.

Director-General Walled City of Lahore Authority (WCLA) Kamran Lashari also attended the signing ceremony and appreciated the efforts made by the FDA.

The Fort and Walled City of Lahore, located in the heart of a metropolis of 11 million inhabitants, comprise a group of various singular monuments of exceptional historical and cultural value, and dense ancient neighbourhoods.

The listing of the fort as a World Heritage Site in Danger in 1981 by UNESCO highlighted the many threats to its integrity. In 2012, the Government of Punjab, WCLA and the Aga Khan Trust for Culture (AKTC) began a decade-long conservation initiative to restore and develop the site.

 

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World Bank approves $200mn for Pakistan’s agricultural sector​

• Funding to be used to support transforming agricultural sector by adopting climate-smart technologies to improve water-use efficiency, build resilience to extreme weather events and increase the incomes of small farmers

BR
16 Jul, 2022

The World Bank’s Board of Executive Directors on Saturday approved $200 million in financing for Pakistan's agricultural sector.

The funding will be used to support transforming the country’s agricultural sector by adopting climate-smart technologies to improve water-use efficiency, build resilience to extreme weather events and increase the incomes of small farmers, said the World Bank in a statement.

“The agricultural sector in Punjab is central to Pakistan’s economy and food security as it accounts for 73% of the country’s total food production,” said the lender.

The World Bank added that the Punjab Resilient and Inclusive Agriculture Transformation Project (PRIAT) will increase agricultural productivity through efficient and equitable access to water for small farms. The programme will support farmers at the community and household levels to adopt climate-smart farming practices and technologies, said World Bank which will improve crop yields and conserve water resources in Punjab.

“In recent years Pakistan’s agriculture sector has suffered from losses in crop yields and livestock, damage to irrigation infrastructure, and food shortages due to climate change, particularly severe droughts in the Punjab province,” said Najy Benhassine, World Bank Country Director for Pakistan.

“This project aligns with the Punjab Agriculture Policy 2018, which promotes massive expansion of water conservation efforts, enhancing sustainability and resilience in the wake of climate change, and private sector participation to help boost the productivity of the sector.”

PRIAT will support farmers implement innovative, climate-smart technologies to help the Punjab government achieve economies of scale to transform the agricultural sector. The project will engage the private sector in sourcing appropriate technologies and providing training tailored for water user associations and individual households to improve water conservation practices and agriculture productivity.

“The agriculture sector has a huge opportunity to both build climate resilience and improves economic conditions by generating access to domestic and international markets,” said Guo Li, Task Team Leader for the project. “PRIAT will help accelerate the government’s efforts to transform the agri-food system through market-oriented production activities that add value, increase competitiveness and generate higher incomes for farmers.”

World Bank informed that the project will benefit about 190,000 small, family-owned farms and 1.4 million acres of irrigated land in rural communities in the province. “It will also provide training to small- and medium-sized farm owners on water conservation and more sustainable, climate-resilient agricultural practices, including for women,” it said.

 

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Moody's, Fitch expect Pakistan to secure $1.2bn IMF bailout package​

• Fitch, however, cautions Pakistan’s ability to complete the current programme and maintain a credible policy path that supports further financing remains highly uncertain

BR
27 Jul, 2022

Moody’s Investors Service and Fitch Ratings said they expect Pakistan to secure the $1.2 billion bailout from the International Monetary Fund (IMF), which may help ease pressure on the country’s currency and forex reserves.

“We assume IMF board approval of Pakistan’s new staff-level agreement” with the lender, Krisjanis Krustins, a Hong Kong-based director at Fitch, was quoted as saying by Bloomberg on Wednesday.

“This will unlock significant additional financing from the IMF and other multilateral and bilateral sources and may well provide a significant confidence boost to the markets.”

Meanwhile, Moody’s expects IMF to disburse the funds in the third quarter, said Grace Lim, a sovereign analyst with the ratings company in Singapore.

Still, the risk that Pakistan may not complete its bailout programme with the IMF is on the downside as the government may find it difficult to adopt measures to raise revenue, she was quoted as saying in the report.

“Pakistan’s ability to complete the current programme and maintain a credible policy path that supports further financing remains highly uncertain, while elevated inflation and a higher cost of living are adding to social and political risks,” Lim said.

The statement comes after Fitch Ratings last week downgraded Pakistan’s outlook from stable to negative in view of the significant deterioration in the country's external liquidity position and financing conditions since early 2022. Moody's downgraded Pakistan’s outlook to negative from stable in June.

Fitch said it saw considerable risks to the implementation of the IMF programme and to continued access of Pakistan to financing after the programme's expiry in June 2023 in a tough economic and political climate.

Economic pundits have regularly stressed on the importance of the IMF bailout for Pakistan, which remains embattled in multiple economic crises including depleting foreign exchange reserves, mounting debt payments and a depreciating local currency that has taken inflation to over 21%.

The IMF reached a staff-level agreement (SLA) with Pakistan authorities earlier this month for the conclusion of the combined seventh and eighth reviews of the Extended Fund Facility (EFF). However, ongoing political and economic upheavals have raised concerns among investors, especially in the context of the government maintaining its reforms' agenda to successfully move forward in the IMF programme.

It has also been reported that the IMF is looking to assess Saudi Arabia’s commitment to financing Pakistan before the multilateral lender disburses fresh funds to the country.

 

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Pakistan’s foreign debt rose to $126 billion, including $85.64 billion government's foreign debt, $7.29 billion owed to the International Monetary Fund (IMF) and $11.58 billion foreign debt owed by the private sector, the National Assembly was informed on Thursday.

In a written reply during the question hour, the lawmakers were informed that the country would have to pay $95.4 billion in interest and principal amount payments from 2022 to 2059.

 

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Regional infrastructure fund–II​

Pakistan, Germany sign €17.5m grant agreement

RECORDER
Aug 02, 2022

ISLAMABAD: The governments of Pakistan and Germany on Monday signed a grant agreement for the Regional Infrastructure Fund (Phase-II) worth Euro 17.5 million.

The signing ceremony for the project named “Regional Infrastructure Fund – II for Khyber-Pakhtunkhwa for Resilient Resource Management in Cities (RRMiC)” was held between the Government of Pakistan and the Government of the Federal Republic of Germany in the Ministry of Economic Affairs.

Mian Asad Hayaud Din, secretary Ministry of Economic Affairs, and Sebastian Jacobi, country director KfW (German Bank for Development) signed the agreement.

The Government of Germany, through the KfW Development Bank, will provide a grant of Euro 17.5 million to the Government of Pakistan for the project. Pakistan has been a recipient of German Development Assistance since the founding of the German Federal Ministry for Economic Cooperation and Development (BMZ) in 1961. The total development assistance encompassing both technical and financial cooperation since 1961 amounts to € 3.8 billion.

With the funds provided by the German Government, KfW Development Bank will support the Government of Khyber-Pakhtunkhwa in investments in community infrastructure, improvements in capacity and service delivery, citizen participation and equality and consultant and contingency services in two districts of KP province. The purpose is to introduce an integrated, multi-sectoral, resilient, and sustainable water and solid waste management with a participatory approach in selected tehsil towns.

Jacobi stated that KfW is actively supporting the Government of Pakistan in the governance sector. These efforts will result in bringing sustainable and lasting positive impact in the lives of the deserving communities in the country and help mitigate the challenges arisen due to poverty and infrastructure damage due to natural disasters.

Hayaud Din expressed gratitude to the Government of the Federal Republic of Germany for supporting the people of Pakistan through the projects. He further stated that the investments will lead to a better and healthy future for the generations to come.

 

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KP to get 17.5m euros for uplift projects​

Amin Ahmed
August 3, 2022

ISLAMABAD: The German Development Bank, known as KfW, will provide 17.5 million euros to the Khyber Pakhtunkhwa government for development projects over the next five years.

KfW Development Bank’s Country Director Sebastian Jacobi and Economic Affairs Division Secretary Asad Hayauddin signed the agreement on behalf of their respective governments here on Monday.

Under the agreement, the financing would cover drinking water supply schemes and develop water and solid waste management infrastructure in Dera Ismail Khan and Bannu districts of Khyber Pakhtunkhwa.

These projects will scale up resilient resource management in KP cities which the KfW has already successfully piloted in Mansehra.

The German federal ministry for economic cooperation and development (BMZ) is financing the project through KfW.

The KfW’s financial cooperation with Pakistan comprises three focal areas: good governance; climate and energy; and sustainable economic development.

The BMZ has invested about 400 million euros in Khyber Pakhtunkhwa through the KfW.

A press release of the German embassy said the project had been designed in consultation with stakeholders in the federal and provincial governments.

Published in Dawn, August 3rd, 2022

 

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ADB to provide $200m for resource mobilisation programme​

Amin Ahmed
August 8, 2022


ISLAMABAD: The Asian Development Bank will provide a loan of $200 million to Pakistan for a resource mobilisation programme, and an ADB fact-finding mission will arrive in Islamabad next week to discuss the proposed loan with authorities, it was learnt here on Sunday.

The proposed ‘Improved Domestic Resource Mobilisation Reform Programme’ will help the government address major binding constraints to mobilise larger resources to enhance productive investment by improving domestic revenue mobilisation; quality of public expenditure and cash management for improving allocation efficiency of scarce public resources; and mobilisation and utilisation of domestic savings and foreign direct investment (FDI).

These key reform areas were closely aligned with the government’s reform agenda for public sector management outlined in the ‘Vision 2025’, the national development strategy, the medium-term budget strategy, and ADB’s country partnership strategy for Pakistan covering 2021-2025 period.

Prior to finalising the loan, the ADB had approved a technical assistance to Pakistan to prepare the improved domestic resource mobilisation reform programme to ensure fiscal sustainability and generate fiscal space to finance critical investments in human capital, infrastructure and poverty alleviation.

With a large informal economy, macroeconomic shocks such as the Covid-19 pandemic in 2020 and the global supply chain disruption in 2021 have pushed the country’s poor deeper into poverty.

ADB said the country’s ability to mobilise adequate domestic resources, including the creation of fiscal space through better expenditure management, remain critical to ensure quality investments in essential public services such as health and education and promote equitable development across its provinces.

The transaction technical assistance will focus on the first and third key reform areas. Through the Ministry of Finance and Federal Board of Revenue (FBR), the technical assistance will

support the implementation of critical tax administration, pension system, and institutional and capacity development reforms in Pakistan.

The assistance for the development and implementation of the second key reform area, for improving the quality of public expenditure and cash management, will be provided through an ongoing regional technical assistance facility for supporting public financial management and tax policy.

According to details, the technical assistance coverage of all key reform areas will ensure not only adequate support for implementation of complex reforms but also strong demonstration of ADB value-addition.

The technical assistance will be implemented by four international and seven national experts.

Published in Dawn, August 8th, 2022

 

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In yet another development on the International Monetary Fund (IMF) front, Pakistan has received a Letter of Intent (LoI) from the Washington-based lender, moving closer to disbursement of the next tranche for the combined seventh and eighth review, reported Aaj News on Friday.

Pakistan would sign off on the LoI and send it back to the IMF, said the report, adding that the IMF Executive Board approval is now the final step for revival of the stalled Extended Fund Facility (EFF).

Earlier this month, the IMF announced that Pakistan has completed the last prior action for the combined seventh and eighth review following the increase in petroleum development levy (PDL), adding that the board meeting is tentatively planned for late August once adequate financing assurances are confirmed.

Back in July, the IMF team reached a staff-level agreement (SLA) with Pakistan authorities for the conclusion of the combined seventh and eighth review.

After approval of the Executive Board, “about $1,177 million (SDR 894 million) will become available, bringing total disbursements under the programme to about $4.2 billion,” the IMF had said in its statement then.

However, it was reported last month that the IMF was also looking to assess commitment of other sources to financing Pakistan before the multilateral lender disburses fresh funds to the country. The Washington-based lender wants to ensure Pakistan does not have a financing gap after the IMF loan.

The IMF funding, along with other financing, is crucial for Pakistan, which is desperately seeking dollar inflows in the face of falling foreign exchange reserves.

Forex reserves held by the State Bank of Pakistan (SBP) fell another $555 million, clocking in at an alarming level of $7.83 billion as of August 5, 2022, as policymakers in the country continued to scramble over securing dollar inflows and provide breathing room to the economy.

The IMF programme revival is also vital for the local currency, which saw its worst month in over 50 years in July.

However, as progress is made over the IMF programme, the rupee has appreciated, and was hovering around the 215 mark on Friday, an over 11% gain since it hit its all-time low last month.