Approval of $750 million loan from Asian Development Bank

Preparation of agreement with ADB for pension reforms and public-private partnership

Islamabad: Government of Pakistan has approved obtaining further foreign loans of total $750 million, i.e. about Rs 209 billion, from Asian Development Bank (ADB) for pension reforms and promotion of public-private partnership.

Purpose of these loans is to make federal pension system sustainable, reduce long-term financial liabilities of pension and promote participation of private sector in government development projects, however questions are being raised regarding purposes of these loans whether instead of further foreign loans to achieve these goals, government needs political commitment and effective policy measures.

According to official officials, Concept Clearance Committee established under chairmanship of Deputy Chairman Planning Commission Ahsan Iqbal has recently approved these two loans.

After formal proceedings of committee's meeting are issued, government will now finalize terms of loans and other procedures with ADB.

According to officials, $500 million, i.e. about Rs 139 billion, will be obtained for pension reforms, while $250 million, i.e. about Rs 70 billion, will be obtained for public-private partnership program. According to documents, purpose of proposed loan for pension reforms is to improve financial sustainability, governance, administrative capacity and delivery of public services of federal pension system.

Under program, focus will be on reducing old financial liabilities of pension, giving practical shape to defined contribution based pension scheme and increasing inclusion of employees. According to report, loans have also been taken in past in name of pension reforms by government.

Planning Commission has sought details of results obtained and practical progress under previous project, however Ministry of Finance has assured to provide this report later.

Ahsan Iqbal directed that concrete results obtained under previous pension reform project should be linked to goals of new program. He also expressed desire that financial stability obtained through loans should increase funds for development program, so that economic growth and employment opportunities can be created.

According to Ministry of Finance, pension expenditures and long-term financial liabilities are continuously increasing, due to which financial space for sectors like health, education, infrastructure, tackling climate change and social protection is becoming limited, however, due to increase in interest payments on loans, there is also fear of further pressure on budget and limited resources available for social sectors. Concept Clearance Committee has also approved loan of $250 million for promotion of public-private partnership in Pakistan.

Purpose of this program is to strengthen legal and institutional system for PPP at federal level and improve management of public investment and financial discipline.

According to documents, out of loan, $200 million will be available on relatively expensive terms, while remaining $50 million will be obtained at concessional interest rate.