ADB’s $300m loan to help achieve sustainable macroeconomic stability

ISLAMABAD: Pakistan and the Asian Development Bank (ADB) on Friday signed a $300 million policy-based loan to help promote macroeconomic stability through improved trade competitiveness and export diversification.

The loan agreement was signed by Secretary Economic Affairs Noor Ahmed and ADB’s Country Director Xiaohong Yang. Minister for Economic Affairs Khusro Bakhtyar witnessed the signing ceremony.

The loan agreement was signed soon after its approval by the board of directors of the Manila-based lending agency on Thursday.

“While Covid-19 hit Pakistan at a critical point in its macroeconomic recovery, the government’s ongoing efforts to ensure stability have started showing encouraging results this fiscal year,” said ADB Principal Public Management Specialist Hiranya Mukhopadhyay.

“The ADB’s programme will support these efforts and help Pakistan to improve its export competitiveness—now more important than ever given the impacts of the pandemic.”

It will help Pakistan recover its current account deficit in a sustained manner and continue to facilitate export diversification. It will introduce important tariff- and tax-related policy reforms to help improve Pakistan’s international competitiveness and further strengthen key institutions, including accreditation bodies, the Export–Import Bank of Pakistan, and the Pakistan Single Window.

The new financing falls under phase 2 of the Trade and Competitiveness Programme. Under the first phase, the ADB helped the government usher in key reforms, including reducing or abolishing tariffs and ad hoc duties on a large number of raw materials and intermediate goods. Several steps were also taken to introduce e-commerce, strengthen key institutions involved in facilitating trade, and enhance the export certification process.

Since fiscal year 2004, Pakistan has registered a rise-and-fall pattern of export growth reflecting underperformance in its export industry and long-term decline in export competitiveness. This is compounded by lost export growth momentum from Covid-19, which has reduced high-income countries’ demand for manufacturing goods and disrupted the supply of raw materials.

Bakhtyar said the government’s key economic reforms and policies helped stabilising external account despite the unprecedented challenges caused by Covid-19 pandemic. “Pakistan’s external account stability is underpinned by highest ever remittances, improved balance of trade & official inflows,” he said.

Ms Xiaohong Yang said the ADB was providing its support for policy reforms and project financing in the key priority areas such as financial management, energy, road, social sector, water & irrigation and urban services.

During the board of directors’ meeting, the ADB management acknowledged that the government’s ongoing efforts to ensure stability have started showing encouraging results despite the Covid-19 challenge, she said.

The ADB said in a statement that it was coordinating efforts with other development partners and donors while the programme complemented International Monetary Fund-led reform initiatives by helping to improve competitiveness, which will help build robust foreign exchange reserves.