ADB approves $300 million loan for Energy Sector Reforms and Financial Sustainability Programs

December 6, 2019 (MLN): The Asian Development Bank (ADB) today approved a $300 million policy-based loan that will help the Government of Pakistan to address financial sustainability, governance, and energy infrastructure policy constraints in Pakistan’s energy sector.

The financing will support the first of three subprograms totalling $1 billion under the Energy Sector Reforms and Financial Sustainability Program, a key component of a comprehensive multi-donor economic reform program led by the International Monetary Fund that aims to put Pakistan’s economy on the path to sustainable and inclusive growth after a deterioration in its fiscal and financial position in recent years.

“The cash shortfall across the power supply chain in Pakistan, also known as circular debt, has shot up to more than $10 billion and is a longstanding chronic issue ailing the country’s power sector,” said ADB Director General for Central and West Asia Mr Werner Liepach. “A comprehensive and realistic Circular Debt Reduction Plan, assisted by ADB in close coordination with other development partners, is the cornerstone of this subprogram. The plan aims to drastically cut the new flows of circular debt and provides policy directions on addressing accumulated circular debt.”

While Pakistan has made a significant effort in recent years to expand its electricity generation capacity and stabilize supply, the country is yet to overcome the challenge of inefficiencies, distortions, and uneven reform progress in the sector. These inefficiencies were estimated to have cost the country’s economy up to $18 billion, or 6.5% of gross domestic product, in 2015.

The energy reform program aims to address the underlying causes of circular debt with a focus on improving inadequate tariff and subsidy systems, strengthening energy accounting, and reducing generation costs.

ADB will finance the program with support from its development partners. The Export-Import Bank of Korea has confirmed it will provide $80 million in co-financing for the first subprogram.