The Asian Development Bank (ADB) announced on Friday that it has approved a substantial $800 million loan and guarantee programme for Pakistan, aimed at strengthening the country’s fiscal sustainability and improving public financial management.
The Improved Resource Mobilisation and Utilisation Reform Programme, Subprogramme 2, includes a policy-based loan of $300m and ADB’s first-ever policy-based guarantee of up to $500m. The guarantee is expected to help mobilise up to $1 billion from commercial banks, the Manila-based lender said in a statement.
The ADB noted that Pakistan had made significant progress in improving macroeconomic conditions, and the new programme supports the government’s commitment to further reforms. These reforms are aimed at strengthening public finances and promoting sustainable growth. The programme is designed to support wide-ranging reforms to improve tax policy, administration, and compliance, while enhancing public expenditure and cash management. It also focuses on promoting digitalisation, facilitating investment, and fostering private sector development.
The primary goal of these measures is to reduce Pakistan’s fiscal deficit and public debt, while creating fiscal space for social and development spending, the ADB explained. The programme is backed by a comprehensive support package, including technical assistance and close coordination with development partners, to help Pakistan build long-term fiscal resilience and stability.
The programme follows a policy-based lending (PBL) modality, which includes two subprogrammes. Subprogramme 1, approved and disbursed in December 2023, totalled $300m and focused on establishing the foundation for policies, laws, and institutional capacities to enhance resource mobilisation and allocation.
Subprogramme 2 builds on these foundational reforms and aims to drive substantial improvements in tax policy and administration, taxpayer compliance, public expenditure, and cash management, as well as the mobilisation and effective utilisation of national resources, including domestic private investment and savings.
For Subprogramme 2, the ADB has proposed the inclusion of policy-based guarantees (PBGs) to support the government’s financing needs within the current fiscal year. These guarantees will take the form of partial credit guarantees (PCGs) to mitigate credit risk for commercial banks lending to Pakistan, thereby facilitating the mobilisation of private capital.
Despite the significant progress in restoring economic stability through consistent policy reforms, the ADB warned that long-standing structural challenges remain. “A narrow tax base limits fiscal fairness, sustainability, and the ability to meet Pakistan’s considerable social and development spending needs,” the bank stated.
Reference Link:- https://www.dawn.com/news/1934913/adb-approves-800m-for-fiscal-sustainability