Finance Minister Ishaq Dar approves co-financing of $500 M by AIIB.
According to Ishaq Dar, Funds of AIIB would be received by the State Bank of Pakistan this month. This sum is designated for BRACE (Building Resilience through Active Countercyclical Expenditures), an Asian Development Bank initiative aiming to mitigate the social consequences of economic downturns.
According to the ADB website, 1.5 billion dollars were approved for Pakistan under the BRACE initiative on 21 October 2022 to “provide social protection, promote food security, and support employment for its people amid devastating floods and global supply disruptions” an amount that would help fund the government’s 2.3 billion dollar countercyclical development expenditure programme designed to cushion the impacts of external shocks such as Russia’s invasion of Ukraine.
According to the ADB, this finance would “give the fiscal flexibility required for the government to undertake its counter-cyclical development spending programme,” which is intended to target Pakistan’s poorest households, who are frequently disproportionately affected during times of crisis.
The assistance provided by the ADB will help to increase the number of families receiving cash transfers from 7.9 million to 9 million, increase the number of children enrolled in primary and secondary schools, and improve geographic coverage of health services and nutritional supplies for pregnant and lactating mothers and children under the age of two.
The government’s assistance includes special initiatives to promote women empowerment and climate change adaptation, both of which have become increasingly crucial in the aftermath of the recent floods.
According to ADB
The fact that BRACE will assist the government in reducing the effects of external shocks “while in parallel, (the government) continues the structural reforms that are essential to strengthen the It is also critical to consider the country’s medium- to long-term macroeconomic prospects.”
It is required to make two points about BRACE support. The terms of the agreed co-financing have not yet been updated on the AIIB’s website, which is a crucial piece of information that the finance minister failed to share with the people of this nation. Second, only 250 million dollars of the ADB loan are concessional, while 1.25 billion dollars are a regular loan (Ordinary Capital Resources).
And Secondly
The government’s 2.3 billion dollar cycle of development spending programme is still 300 million dollars short of the 1.5 billion dollars approved by ADB and the 500 million dollars by AIIB. It’s unclear if this deficit has already been filled by other multilateral or bilateral or if proactive solutions are still being sought.
While money is fungible, and as of 28 October, foreign exchange reserves stood at 8.9812 billion dollars, barely enough for more than 1.5 months of imports, the government must remember that this money is specifically designated for the poor, and it must take care not to use the fiscal space thereby created for subsidies to the wealthy and influential, including Electricity subsidies to the five export-oriented sectors are anticipated to cost more than $1 billion apiece.
The CDEP (Countercyclical Development Expenditure Programme) recipients will be surveyed by an impartial third party three months after the programme concludes in June 2023, according to the project documentation.
Therefore, the days when allocating funds for specific purposes could be done so with little repercussion are long gone. In this context, the ADB project document on BRACE warns that “the IMF and ADB debt sustainability analyses conclude that Pakistan’s public and external debts are projected to remain sustainable against the backdrop of policy reforms and fiscal adjustments envisaged under the 2019 EFF” – or, in other words, that if the policy reforms are abandoned, funds will be stopped.
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