Pakistan Reader# 642, 14 August 2023
Ankit Singh
On 10 August, Finance Division published its quarterly report on the implementation of the Building Resilience with Active Countercyclical Expenditures (BRACE) loan program with the Asian Development Bank (ADB). A loan of USD 1.5 billion was approved in October 2022 under ADB Strategy 2023 for Asia-Pacific emerging economies, ADB country partnership (2021-25) and assisting the government in promoting social inclusion and supporting trade-related sectors.
The following three takeaways can be identified from the report.
1. Geography specific economic reforms by the ADB
First, ADB is framing para-diplomacy in economic reforms, which is geography specific. According to the original country partnership document available ADB site, the partnership is aimed at supporting the government in infrastructure and social sector deficits. It acknowledges that the country also faces climate change-related degradation and the need for urgent adaptation and mitigation measures. The ADB loan program mentions targeted institutional reforms and infrastructure development and seeks reforms with physical and social investments for greater sustainability and development impact. ADB is engaged with helping in developing transport corridors and promoting renewable energy in Central Asia and hence ADB is preferring targeted policy programs.
2. Failure to cushion Pakistan’s economy vis-à-vis external shocks
Second, the BRACE program has not cushioned Pakistan’s economy to external shocks. The funding under the loan program is to help countries during countercyclical development expenditures. Floods, COVID pandemic and now Russia-Ukraine conflict are external shocks which have increased and disrupted development policy plans in Pakistan. However, at the end of the report, Finance Division has listed some persistent challenges in the following order; fuel prices, edible oil and its vulnerable prices have impacted the GDP and household consumption, poverty and inflation are going to push 8.4-9.1 million more people into poverty due to devastating impact of external shocks.
3. Increase in government expenditure
Third, the Pakistan government’s expenditure has increased by 30 per cent. The fiscal deficit stands at USD 7.69 billion (Revenue at USD 21.47 billion and expenditure at USD 29.16 billion for first half of FY2022-23), and a large part of the expansion is due to an increase in higher servicing on domestic and foreign debt due to a higher level of interest rates. Under the loan program, the government provided energy subsidies worth USD 493 million, which is almost equal to 10 per cent of net subsidies provided to the power and petroleum sector in FY2022. The subsidy is 20 per cent of the net USD 2.3 billion to be received from ADB. Almost 14 per cent are scheduled for food security.
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.jpg)
Matiari-Lahoretransmissionlinei.jpg){kind=spacer}
