ADB conditions for $2bn loan accepted PDF Print E-mail
Written by Harris Badar   
Saturday, 11 October 2008

ISLAMABAD: Pakistan and the ADB have signed official documents for loan facility of $1.8 to $2 billion over next two years under which Islamabad will have to withdraw power sector subsidy by passing on whole burden to consumers, elimination of circular debt of power sector, raising support and procu ... ISLAMABAD: Pakistan and the ADB have signed official documents for loan facility of $1.8 to $2 billion over next two years under which Islamabad will have to withdraw power sector subsidy by passing on whole burden to consumers, elimination of circular debt of power sector, raising support and procurement price of wheat to market level and enactment of new SBP Act till June 2010.

The Asian Development Bank (ADB) has recently released a tranche of $500 million to cash-starved Pakistan under the Accelerated Economic Transformation Program. The Finance Minister of Pakistan and the President of ADB signed the agreement. A copy of the 114- page document is exclusively available with The News.

According to official document Pakistan has accepted the ADB’s condition to put in place market based wheat pricing and efficient reserves management by increasing support price to at least 80 per cent of import parity level by June 2009 and support and issue price of wheat be raised to market level till June 2010.

Pakistan and ADB also agreed that wheat reserves be set at three months of national annual average consumption requirements; and pursuant to this, administrative restrictions on domestic movement of wheat eliminated.

It was also agreed between both sides that the operational reserves for wheat should be eliminated and the strategic reserves capped at two months of annual average national consumption requirements as well as restructuring of PASSCO and the provincial food departments and directorates completed till June 2010.

The document states that the PPP government obtained Parliamentary approval to reduce electricity subsidies through: (i) elimination of generalized sales tax subsidies for all domestic consumers and up to 500 units for commercial consumers; (ii) introduction of automatic monthly fuel price adjustments through a surcharge; and (iii) introduction of an additional surcharge to be levied on all consumers to reduce the gap between determined and notified tariffs.

Work on estimating power sector debt overhang and circular debt has been initiated. Pakistan accepted that the circular debt in the power sector should be eliminated and the overall debt liabilities adequately settled while differential between the determined and notified tariff eliminated to reflect the actual cost of supply of power to end consumers (except lifeline households).

The document states that all past electricity subsidy payments worth Rs133 billion for financial year 2008 was fully settled, and Rs88 billion allocated in the FY2009 budget to partially cover the difference between determined and notified tariffs [for FY 2009].

The State Bank of Pakistan (SBP) has launched work on a new Central Bank Law that provides for greater autonomy and accountability of SBP in its monetary and financial policies, effective regulation and supervision of financial institutions under its oversight, and clarity in the role of SBP in financial safety net and lender of last resort functions. Both the ADB and Pakistan agreed that new SBP act enacted and key provision implemented by June 2009.

Payments Systems and Electronic Funds Transfer Act (2007) enacted, Real-Time Gross Settlement (RTGS) system launched and Centralized online system for retail payment systems established. Both sides agreed that RTGS fully rolled out and retail payment systems being implemented. Consumer Protection Department established in SBP and work launched on a Consumer Protection Law and it would be enacted by June 2009. Deposits Protection Scheme would be launched by June 2010.
 
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