Govt to borrow $1b for reforms | The Express Tribune

ISLAMABAD:

Pakistan has decided to obtain two foreign loans worth $1 billion for enhancing efficiency of the tax machinery, accountability of expenses and ensuring compliance with state-owned enterprises law — objectives that require will to improve rather than fresh loans.

The country has decided to seek a $600 million loan from the World Bank for the “Pakistan Public Resources for Inclusive Development” programme and $400 million from the Asian Development Bank (ADB) for the “Accelerating State-Owned Enterprise Transformation Programme”, official documents showed.

The $1 billion translates into a staggering Rs281 billion at the current exchange rate, sufficient to build an airport or hundreds of schools.
The loans will be obtained as budget support to cushion foreign exchange reserves. No asset will be created using the fresh foreign lending, details of these under-negotiation loans showed.

The development collides with a proposal by Syed Naveed Qamar, Chairman of the National Assembly Standing Committee on Finance. Qamar this week sought ratification of foreign debt deals by Parliament to ensure transparency and better utilisation of lending facilities.

Sources said the Ministry of Finance has proposed obtaining these loans as budget support to cushion foreign exchange reserves. Unlike the past, the International Monetary Fund (IMF) has so far not unlocked major foreign lending. This compelled the central bank to buy $8.4 billion from the local market last fiscal year.

Budget support loans are not disbursed against asset creation. Money is released upon completion of agreed prior actions, mainly policy and law changes.

Sources said the $600 million World Bank loan will fund “reforms” in the Finance Division, Federal Board of Revenue (FBR), Pakistan Bureau of Statistics (PBS), Ministry of Commerce, Power Division, Ministry of Information Technology, Pakistan Procurement Regulatory Authority (PPRA) and Office of the Accountant General Pakistan Revenue (AGPR).

Of the $600 million, $560 million will be disbursed against achieving certain targets. These include increasing income tax share in total taxes to 55% over five years. The current ratio is less than 50%. Usually, such targets are kept soft to ensure smooth tranche disbursement.

The government’s rationale in official documents is that Pakistan’s human capital outcomes like high stunting, learning poverty and infant mortality reflect chronic underinvestment and inefficient public spending shaped by a rigid, deficit-prone fiscal framework.

The official stance is that the $600 million programme will directly address these structural constraints, enabling Pakistan to sustainably finance inclusive development and meet national goals.

Officials said the Finance Division and the World Bank were in the process of finalising loan package details.

The programme aims to strengthen the fiscal system to support macroeconomic stability and service delivery. This will be achieved through “more efficient and effective revenue collection, strengthened allocation, efficiency and accountability in expenditures, and improved statistical data landscape for policymaking.”

The Express Tribune reported last month that there was a staggering $30 billion discrepancy in import figures reported by various government entities over a period of five years.

Under the proposed programme, PBS will gain from technical assistance, upgraded systems and capacity building to provide timely, accurate data for policy decisions, according to the documents.

The loan money is also being taken in the name of strengthening the Tax Policy Unit, Debt Management Office, government rightsizing and open budgeting.
However, the World Bank and ADB have previously funded these offices. Much more remains to be achieved, indicating that improving governance of these institutions is needed more than money.

Sources said the FBR had previously expressed desire to utilise World Bank funds for buying weapons for civil armed forces, mainly Customs Enforcement. However, the World Bank did not agree. The FBR may again propose including “equipment, weapons required by civil armed forces” in the new lending envelope.

However, sources said the Planning Commission has raised objections to the new $600 million plan. It noted that foreign loans had previously been taken for FBR and AGPR. Existing lending programmes — Pakistan Raise Revenue Programme for FBR worth $450 million and Implementation of Online Billing solution (SEHAL) for AGPR — overlap with the new proposed plan.
ADB loan
Sources said the government is also seeking a $400 million loan from ADB for the Accelerating State-Owned Enterprise Transformation Programme.
The ADB package aims to address critical corporate governance and commercial performance challenges within 40 of Pakistan’s commercial state-owned enterprises.
ADB has already funded hundreds of millions of dollars in packages for improving governance and development of the SOEs framework in Pakistan.
In a seminar organised by the Sustainable Development Policy Institute (SDPI) this week, country heads of the United Nations Development Programme and IMF emphasised improving poor governance for better service delivery.
IMF has also conditioned approval of the third $1 billion loan tranche under the Extended Fund Facility on publication of the Governance and Corruption Diagnostic Assessment report.
Sources said the new loan addresses governance challenges by enhancing efficiency, financial sustainability and performance of 40 SOEs, particularly the financial sustainability of National Highway Authority (NHA).
Stated objectives of the new facility include strengthening governance and compliance with SOE Act and policy, enhancing institutional capacity for oversight and monitoring, and improving financial and operational performance of NHA. Systematic monitoring and accountability have been weak due to limited institutional capacity within the Central Monitoring Unit and line ministries.