$750m financing pacts inked with WB and AIIB


ISLAMABAD: The government Thursday signed two financing agreements valuing $750 million with the World Bank (WB) and the Asian Infrastructure Investment Bank (AIIB) for the Resilient Institutions for Sustainable Economy (RISE) programme.

The WB will extend financing of $500 million and the AIIB will provide co-financing of $250 million for the RISE programme.

As per the project documents available on the AIIB website, the cost and financing plan is as follows, programme cost, $750 million, financing plan: AIIB loan, $250 million, IBRD loan, $250 million, and IDA credit, SDR 183.2 million ($250 million equivalent). Further, the estimated date of loan closing is May 2021.

According to the WB, the IDA credit has a maturity of 30 years with a 5-year grace period and the IBRD loan has a maturity of 25.5 years and 5.5-year grace period.

This is concessional financing in the form of budgetary support that is being provided by the two IFIs under RISE, Development Policy Financing with the objective to (i) enhancing the policy and institutional framework to improve fiscal management, and (ii) improving the regulatory framework to foster growth and competitiveness.

The efforts aimed at strengthening fiscal management will support the ongoing stabilization efforts of the government.

The programme also includes actions that respond to the immediate COVID-19 pandemic needs and addresses medium-term reforms.

Upon signing of the loan agreements, the amount of $750 million will be immediately disbursed to Pakistan in one tranche by the WB and the AIIB in the next few days.

The disbursements under the programme will strengthen foreign exchange reserves and provide liquidity for the economy.

Noor Ahmed, secretary, Ministry of Economic Affairs signed the two loan agreements on behalf of the government of Pakistan, while Patchamuthu Illangovan, Country Director, WB, and Konstantin Limitovsriy, Vice President, AIIB signed agreements on behalf of the WB and the AIIB respectively.

The AIIB Board of Directors approved the loan of $250 million on Wednesday to help Pakistan strengthen its response to the social and economic fallout from the COVID-19 pandemic.

The World Bank’s Board of Executive Directors on June 29, 2020 approved $500 million in financing for the RISE to help Pakistan strengthen fiscal management, promote transparency and private sector growth, and undertake foundational reforms in the energy sector to transition to low-carbon energy.

These reforms are critical to build fiscal resilience and stimulate recovery from impacts of the COVID-19 pandemic.

According the project document, the actions taken by the borrower under the programme include the following: The Finance Division has: (a) assigned fiscal coordination responsibilities to the National Finance Commission Monitoring Committee, which comprises federal and provincial finance ministers, based on the decision of the Council of Common Interests (CCI); and (b) established the Macro-Fiscal Policy Unit to be responsible for developing the medium-term fiscal and budget framework and fiscal risk management.

The Finance Division has: (a) transferred domestic and external debt management and issuance of guarantees to the Debt Policy Coordination Office; (b) mandated the publication of a medium-term debt management strategy; (c) mandated the semi-annual publication of a debt bulletin; and (d) required the issuance of sovereign guarantees for all the SOEs to be contingent upon publication of previous year’s audited financial statements and submission of a detailed plan to achieve financial stability.

The Federal Board of Revenue (FBR) has: (a) increased the immovable property valuation to 85 percent of the market value for withholding income tax and capital gains tax; (b) reduced the personal income tax thresholds; and (c) removed the special treatment on general sales tax for five sectors.

The Cabinet has approved the Circular Debt Management Plan, which includes policy measures to minimise the flow, gradually eliminate the stock of circular debt, and improve DISCO efficiency; and the Finance Division has issued a notification to transfer the PHPL debt to the public debt stock.

The CCI has approved the Renewable Energy Policy, which includes the adoption of competitive bidding as the main procurement method.

The National Finance Commission Monitoring Committee has approved a general sales tax harmonization framework with common taxation principles, harmonized definitions of goods and services, common place of supply rules, and a single rate.

The FBR has notified the Benami Transaction (Prohibition) Rules of 2019, mandating all commercial banks to conduct biometric verification of all bank account holders, as instructed by the State Bank of Pakistan.

The State Bank of Pakistan has: (a) issued regulations for Electronic Money Institutions, enabling non-bank institutions to issue electronic money; and (b) granted five licenses to Electronic Money Institutions.

The Cabinet has adopted the National Tariff Policy, transferring responsibility for trade tariff setting to the Ministry of Commerce and simplifying and rationalising the tariff structure.