The Asian Development Bank (ADB) will likely approve a $1.5 billion Countercyclical Support Facility (CSF) to Pakistan under its Building Resilience with Active Countercyclical Expenditures (BRACE) Program.
According to official documents available with ProPakistani, the program is in response to the worsening macroeconomic crises compounded by the Russian invasion of Ukraine and devastating floods that have affected nearly 32 million people.
The Central Development Working Party approved the concept clearance proposal for the $1.5 billion loan under the BRACE program on Wednesday.
The document states that the program is “essentially a commercial loan”. As Pakistan is already facing an economic crisis, sponsors may negotiate for a concessional loan. Further, sponsors may also provide loan repayment mechanisms for the proposed loan, the document reads.
To mitigate the adverse impact of the cumulative shocks, especially on the poor and vulnerable, the government’s countercyclical measures amount to nearly $2.4 billion. The BRACE Program will provide general budget support to the government to help create fiscal space needed to finance its crisis response and relief measures, protect the poor, and facilitate economic resilience to future shocks.
BRACE is a component of the ADB’s Countercyclical Support Facility, which does not include conditions found in the traditional lending portfolio.
The following measures have been proposed among others to ensure sustainability and build capacity:
- The establishment of a steering committee (stakeholders) to oversee the implementation of relief and response measures
- The government-led platform for monthly coordinated discussion on policy dialogue with development partners
- Submission of quarterly report to ADB
- Verification of selected IMF indicators through independent surveys under ADB technical assistance
The funding will be used for social protection (BISP), food security, and enhanced support for business entities, and will last till June 2023.
According to details, the financing sources include $1.25 billion from ADB’s regular ordinary capital resources (OCR) and $250 million in concessional ordinary capital resources (COL). The OCR is a 7-year term that includes a grace period of 3 years, an interest rate of Secured Overnight Financing Rate (SOFR) plus 75 basis points contractual spread and surcharge, and such other terms and conditions will be set forth in the draft loan agreement.
The COL will have a 25-year term including a 5-year grace period and 2 percent interest charge, and such other terms and conditions will be set forth in the draft loan agreement.
The lending has been invited for general government budget assistance, which will help build the fiscal space required to fund crisis response and relief measures, protect the poor and vulnerable, and facilitate economic resilience to withstand future shocks.
The ADB board will deliberate on the approval of the $1.5 billion loan on October 21, 2022.