The government has decided to take a $1 billion budget support loan for making policies to deal with climate disaster but deferred approval of a $40 million project due to exorbitant rates quoted for buying furniture and laptops by using a foreign loan.
The Central Development Working Party (CDWP) approved the concept clearance proposal for taking the $1 billion loan from the Asian Development Bank (ADB) under the second tranche of the Climate Disaster Resilience Enhancement Programme (CDREP). Planning Minister Ahsan Iqbal chaired the meeting, and its endorsement of the proposal would pave the way for approval by the ADB. Out of the $1 billion, $500 million would be immediately released after approval by the ADB board, and the remaining amount is linked with needs arising out of any natural calamity. Government officials said the $500 million tranche disbursement is expected before June, aimed at covering any dent on foreign exchange reserves after repayment of $4.8 billion in loans this month. The government was also at the final stage of negotiations to take more loans from Saudi Arabia to offset the impact of $3.5 billion in upcoming debt repayment to the United Arab Emirates.
According to finance ministry officials, the $500 million ADB loan would primarily be sourced from ADB’s Ordinary Capital Resources, while the government will provide support through policy reforms and budgetary facilitation without direct cash counterpart contribution. The remaining $500 million Contingent Disaster Financing (CDF) component is expected to remain available over five years to provide timely financial support in the event of disaster shocks, they added.
Pakistan is highly vulnerable to climate-induced disasters, particularly floods, droughts and extreme weather events, resulting in significant economic and social losses. It is estimated that Pakistan needs $30 billion to $60 billion annually to deal with climate disaster. However, the fresh lending is secured against changing policies, which does not require any loan by the government’s will to change.
According to documents, weak institutional coordination and fragmented disaster governance were barriers to dealing with these disasters. The government has admitted that there was an absence of risk-layered disaster risk financing mechanisms, and fiscal vulnerability was high due to reliance on post-disaster financing.
The $1 billion debt would cover areas such as building institutional capacity for disaster risk management, implementation of the National Disaster Management Plan III, operationalisation of the National Emergency Operations Centre (NEOC), risk-based flood management and climate-resilient investment. Pakistan has committed to making an operational disaster risk financing framework with a target mobilisation of Rs200 billion to ensure timely and adequate financial response to disaster events.
The $500 million contingency money has been planned to be utilised for providing social protection to nearly nine million vulnerable households in the event of disasters. The ADB loan will have a term of 15 years, including a grace period of three years. Officials said the interest rate will be determined in accordance with ADB’s flexible loan product, and a commitment charge of 0.15% per year will apply on undisbursed amounts.
WB loan for buying furniture
Officials said the CDWP deferred approval of the World Bank-funded $40 million Public Resource Mobilisation project due to serious objections over the use of loan money for non-essential goods and quoting exorbitant prices. Iqbal constituted a committee that will be headed by the vice chancellor of the Pakistan Institute of Development Economics (Pide) to scrutinise the project and the cost of components proposed to be purchased using the loan proceeds.
The planning minister remarked that billions of dollars have been borrowed in the past and used for activities that did not require any foreign funding. According to the proposal submitted before the CDWP, the government would hire 20 people using World Bank loans at salaries ranging from Rs105,000 to Rs875,000 per month. The main reservations were against procurement of laptops, computers and furniture using loan money.
The finance ministry sought Rs770 million for procurement of equipment and another Rs428 million for software development. Another Rs285 million has been demanded for open budget support, web development, content development, format and reports. Likewise, system development consultants, data analysts and financial reporting experts are proposed to be hired at a cost of Rs485 million without mentioning their numbers and terms of reference, according to official documents.
The Rs285 million has been demanded for data integration, development of portals, process simplification, business process engineering and workflow simplification, and another Rs285 million for the use of artificial intelligence for fraud detection.
The details showed that out of the total $40 million cost, consulting services would consume 38%, while goods and information systems would require 36% of total funding, making up 74% of the project cost. According to the proposal, 15 desktops worth $3,000 each, eight laptops worth $3,000 each, 15 telephones worth $1,000 each and $50,000 for furniture have been demanded. Likewise, 10 laptops each costing $2,800, a photocopy machine worth $5,500 or Rs1.54 million, 10 office tables and chairs each worth $1,500, three sofa sets with tables each costing $2,000, and 12 visitor chairs each costing $1,200 have been demanded.
