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ADB Board to Formally Approve $500 Million Loan for Pakistan

October 29, 2008 by D-8 Secretariat

The executive board of the Asian Development bank (ADB) is likely to accord a formal approval to the much awaited $500 million loan package “Pakistan Accelerating Economic Transformation Programme” in its meeting scheduled to be held today (Tuesday), official sources told Daily Times on Monday.

According to the sources, the ADB has linked this loan programme with some harsh conditions in the different sectors like agriculture, power to be fulfilled by the government of Pakistan in due course.

Four broad-based conditions that have been imposed by the Asian Development Bank for this loan require the government of Pakistan to ensure market-based wheat pricing with no wheat support price regime from year 2010, lifting of ban on export of wheat in year 2009, efficient reserve management, eliminate totally electricity subsidies and restructure debt, put in place safety nets for poor and vulnerable households and develop and implement structural re-transformation in Pakistan, the sources added.

The executive board of the ADB is scheduled to meet on Tuesday at Philippines’ capital Manila to consider Pakistan’s request and accord the formal approval to a loan package worth $500 million, official sources at the Ministry of Finance informed.

This would be first programme by any international financial institution (IFI) for the coalition government of the Pakistan People’s Party. The approval and disbursement of $500 million to Pakistan would be a great relief for the country and its ailing economy.

The Economic Coordination Committee (ECC) of the Cabinet in its meeting held on September 23, has approved some of the conditions of the ADB relating to the agriculture sector.

Under these conditions Pakistan would be required to implement market-based wheat pricing and efficient reserve management. In this regard, the government would be required to implement three important conditions like fixation of support price for wheat to be 80 percent of export parity price in the current fiscal year 2008-09.

The government would also have to ensure 90 percent export parity price and eliminate domestic and international trade restrictions by October 2009. The third import condition requires Pakistan to totally eliminate wheat support price regime with effect from October 2010, official sources further informed.

Under the Agriculture Sector Program Loan II (ASPL II) the last government had assured the ADB that under the phased wheat reforms policy, it would not, in any circumstances, reverse the liberalisation of the wheat trade. No restriction would be imposed on the movement of wheat at any level within the country, and private traders would be allowed to buy and trade wheat without any restriction.

According to a policy paper that the then government submitted to the ADB for release of third tranche of the ASPL II, a clear distinction would be made during stock buildup by the public sector, between the guaranteed minimum price (GMP; fixed and announced before the sowing season) and the procurement price (variable and dependent on market conditions), which the government would use in building up stock if the targeted amount is not bought at the guaranteed price.

Producers of wheat will be free to sell their wheat either to the government or to the private sector.

A strategic reserve (the size of 1 million tonnes initially suggested under ASPL II would be reviewed by the government) would be maintained and it will be distinguished from the operational stock (which was used to stabilise price within the year but will now be reduced in size over time to the extent needed for the targeted food subsidy programme). The strategic reserve will be managed optimally and cost-effectively to influence the domestic wheat price, if necessary.

The government, through a body of experts, would set a price band for wheat procurement and marketing, with the GMP at the lower end, to provide incentives to growers, and a predetermined ceiling to serve the interest of the consumers. The import and export of wheat will be open to the private sector, and the government will continue its policy of liberalising wheat imports and exports. The general subsidy programme will end, and will be replaced by the targeted food subsidy programmes for the underprivileged to reach the poorest of the poor.

D-8 cherished this news by saying that the loan will hopefully support the Pakistan government’s effort to deal with the global challenges regarding with the skyrocketing food prices. “We are glad to see the big attention ADB gave to Pakistan, in their effort to deal with the rising food prices, inflation, and food availability,” said Secretary General Dipo Alam yesterday in his office.

D-8 has identified some potential cooperation to combat the rising food prices threat, as discussed among D-8 head of states in 6th Summit, which includes :

  • To develop some fertilizer and pesticide plants in D-8 countries, and apply Preferential Trade Agreement for exporting and importing the products to ease D-8 farmers to produce more food products and the supply;
  • To develop cooperation on animal feed factory within D-8 countries; and apply Preferential Trade Agreement for exporting and importing the products;
  • To establish a Seeds Bank in D-8 Countries for enough seeds stock whenever are needed for increasing more food products within the countries, as well as a ready stock whenever needed by farmers because of natural disasters, and other unfortunate situation;
  • To establish D-8 Food Fund for helping the needy on the food within D-8 countries caused by current unfortunate situation in food crisis time;
  • To set up an R&D and technological cooperation in the areas of agricultural development, especially to increase the productivity both in inland-farming and agro-based industry;
  • To cooperate for diversifying agricultural products supply, including fishery; animal husbandry; and organic products;
  • To establish capacity building, including education and training program; and
  • To establish a public-private partnership, by involving more private sectors participation in the programs.

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