The Asian Development Bank (ADB) confirmed the signing of a $1.2 billion loan agreement with Pakistan on Wednesday. This significant deal, finalized on December 15, encompasses funding for budget financing and projects dedicated to domestic resource mobilization.
Notably, at least one-third of the funds will be directed towards budget financing, addressing challenges in financing pipelines resulting from a prior agreement with the International Monetary Fund (IMF). The Economic Affairs Division (EAD) and ADB formalized the loan agreements last Friday, with a specific allocation of $400 million for budget support through two separate agreements.
In a parallel development, the executive directors’ board of the World Bank has approved $350 million in financing for the Second Resilient Institutions for Sustainable Economy (RISE-II) Operation in Pakistan. The focus of this initiative is to strengthen fiscal management and promote competitiveness for sustained and inclusive economic growth. According to Najy Benhassine, the World Bank country director for Pakistan, urgent fiscal and structural reforms are needed to restore macroeconomic balance and pave the way for sustainable growth.
Benhassine highlighted that RISE-II builds upon earlier reforms addressing tax, energy, and business climate, with the goal of generating additional revenues, improving expenditure targeting, and stimulating competition and investment. The operation aims to enhance fiscal management through improved coordination of fiscal policies, increased debt transparency and management, strengthened property taxation, and improved financial viability in the power sector.
Moreover, the World Bank initiative seeks to foster growth and competitiveness by reducing the cost of tax compliance, enhancing financial sector transparency, encouraging digital payments, and facilitating exports through lowered import tariffs. Derek HC Chen, the task team leader of the operation, emphasized that with the foundations laid by RISE II and support from other International Financial Institutions (IFIs), Pakistan has the opportunity to address long-standing structural distortions in its economy after the upcoming general elections. However, he cautioned that failing to seize this opportunity could risk plunging the country back into stop-and-go economic cycles.
