Cash-strapped Pakistan secures $655 million financing package from ADB

Cash-strapped Pakistan has secured a $ 655 million financing package, including an expensive $ 300 million loan at market rates, from the Asian Development Bank, days after Finance Minister Shamshad Akhtar declared the country's public debt as unsustainable.

The ADB approved a financing package for Pakistan under three different loans. Among other components, these include $ 300 million for improving domestic resource mobilisation; $ 275 million for rehabilitating schools damaged by the devastating August 2022 floods; and $ 80 million for enhancing agricultural productivity to improve food security, according to an announcement by the ADB on Wednesday.

The announcement by the Manila-based lending agency came as the World Bank's Debt Management and Sustainability Mission met with Finance Minister AKhtar to review the debt management of the country, reported the Express Tribune newspaper.

Last week, Dr Akhtar announced that Pakistan's debt burden has become unsustainable -- a notion to which World Bank's Vice President for South Asia Martin Raiser did not agree. In an interview, Raiser described the country's debt as sustainable.

The ADB is already paying the salaries of half of the staff of Pakistan's Debt Management Office, which should ideally be paid by Pakistan's finance ministry.

Despite pronouncing the debt unsustainable, Pakistan has contracted one of the expensive loans by the multilateral lenders, which mostly give financing at concessional rates.

The $ 300 million loan will have a 15-year term, including a grace period of three years; an interest rate determined in accordance with ADB's Flexible Loan Product; a commitment charge of 0.15 per cent per year; and such other terms and conditions set forth in the loan agreement, according to the ADB documents.

The Flexible Loan Product is a market-based floating rate lending instrument and at current market prices, it would cost Pakistan over 6 per cent interest a cost that is almost three times higher than the concessional lending by the World Bank and the ADB.

The 15-year tenor of the ADB loan is also relatively shorter than its previous financing to Pakistan.

Despite plunging deeper into the debt trap, Pakistani authorities are taking loans for a purpose that only needs a strong will.