ISLAMABAD, Oct 20: The Asian Development Bank (ADB) will offer additional $885 million in 2005 to help improve the country's depleting infrastructure and neglected social sectors.
Informed sources told Dawn here on Wednesday that the ADB has agreed to further extend $1.07 billion in 2006, out of total of $1.96 billion assistance, planned mainly for infrastructure development and poverty alleviation.
This will be an additional funding line over and above the roughly $1 billion assistance being offered annually to Pakistan.
The sources said that the criteria for disbursing this $1.96 billion assistance is being finalized in Manila, the head office of the Bank. The Bank is finalizing Country Strategy Paper (CSP) for Pakistan, outlining the details of the new assistance reportedly being offered as a special favour to Pakistan to help alleviate poverty and improve the debilitating infrastructure across Pakistan.
"The ADB is looking forward to have the list of the development projects to be funded under the new programme, and as soon as this list is furnished, the Bank will start disbursing funds to the government of Pakistan," a source said.
Generally, he pointed out that major chunk of the $1.96 billion additional assistance would be used for infrastructure development, poverty alleviation, health and education.
A considerable amount of funds, he said, would be utilized in towns and rural areas of the country.
However, while the ADB has agreed to enhance its annual level of funding beside $1.96 billion new assistance, it has expressed its reservations on some important issues.
In its major report "Pakistan Economic Update" (July 2003-June 2004) the ADB said that overall the economy is poised to move to high growth path in medium term. "However, with the economic recovery gaining momentum, prices, interest rates and the exchange rate will come under pressure. Both inflation and interest rate have bottomed out and the rupee has depreciated in recent months, as the trade deficit increased and the current account surplus declined sharply," it said.
The update also pointed out that it would be a real challenge for the State Bank to manage the rise in interest rates in such a way that it does not thwart the ongoing economic recovery. At the same time, the government is financing the fiscal deficit, will have to find a balance between excessive domestic borrowing crowding out credit for the private sector, and excessive external borrowing eroding the gains of last few years in debt management.
"The government will have to contain its borrowing requirements by mobilizing adequate revenues by consistently moving forward with taxation reforms, as well as improvements in tax administration," the update said.
It added that the State Bank would have to use the exchange rate to keep the growing deficit in the trade account under control, instead of the government using tariff and non-tariff measures to restrict imports.