Covid-19 pandemic: AIIB approves $250m loan to tackle social, economic fallout

ISLAMABAD: The Asian Infrastructure Investment Bank (AIIB) Board of Directors has approved a loan of $250 million to help Pakistan strengthen its response to the social and economic fallout from the COVID-19 pandemic.

According to an official statement, co-financed with the World Bank, this development policy financing will help bolster the government's Resilient Institutions for Sustainable Economy (RISE) Programme, which aims to stimulate investment in human capital, expand social safety nets, improve the country's emergency health infrastructure and foster economic growth. The RISE Programme is a part of set of measures Pakistan has undertaken towards recovery from the impact of the pandemic.

As per the project documents available on the AIIB website, the cost and financing plan is as follows, programme cost, $750 million, financing plan: the AIIB loan, $250 million, IBRD loan, $250 million, IDA credit - SDR 183.2 million ($250 million equivalent).

Further, the estimated date of loan closing is May 2021.

It further added that the RISE Programme is proposed to be supported under the COVID-19 Crisis Recovery Facility (the Facility) of the bank and co-financed with the World Bank as a Development Policy Financing (DPF) under the WB's Policy on Development Policy Financing (DPF Policy).

The official statement added that the health crisis was expected to have far-ranging and long-term repercussions on growth, which might undermine the hard-fought progress the country had made in restoring macro-economic stability.

Already, employment in the formal and informal sectors has seen a downturn with the poor, women and other vulnerable groups disproportionately affected.

The objectives of the proposed programme are to (i) enhance the policy and institutional framework to improve fiscal management; and (ii) improve the regulatory framework to foster growth and competitiveness.

These objectives will promote social protection and economic resilience to prevent long-term damage to the productive capacity, including human capital, of Pakistan's economy.

The programme constitutes one element of Pakistan's response to and recovery from the impact of the COVID-19 pandemic, focusing on economic revitalisation and crucial health and social sectors spending.

While covering the government's public health and emergency expenditures, the programme also comprises policy and institutional actions to mitigate the adverse health and economic shocks.

These policy actions will promote medium-term reforms in macroeconomic management, institutional strengthening and foster growth and competitiveness for economic resilience.

The fiscal space provided under the programme will deliver (i) social protection for the poor and vulnerable, (ii) an expanded health sector response to the pandemic, and (iii) a pro-poor fiscal stimulus package to ensure recovery in growth and employment.

The programme is, therefore, part of an integrated package of immediate efforts by the Government of Pakistan (GoP) to mitigate the significant negative health, social, and economic impacts of the COVID-19 pandemic.

The programme focuses on the government's efforts for socio-economic recovery and increased spending in health and social sectors, while putting in place foundations for sustained economic growth around two policy pillars.

The first pillar focuses on reforms that will enhance macro-economic stability and fiscal management by (i) improving fiscal policy and sustainability by establishing effective institutions and strengthened intergovernmental arrangements [these would lay good foundation for socio-economic recovery, including improve spending in health and social sector], (ii) enhancing debt transparency and management, (iii) broadening the tax base and reducing distortions in tax policy, and (iv) reducing fiscal risks emanating from the energy sector. Measures under the second pillar will support growth and competitiveness by (i) harmonizing the nationwide general sales tax, (ii) enhancing transparency and deepening of the financial sector, (iii) supporting digital financial inclusion, and (iv) promoting better regulated real-estate developments, and competitiveness.

"The pandemic has rapidly evolved in Pakistan and now threatens to undo many of the hard-won gains made in reducing poverty over the past two decades," said the AIIB Vice President, Investment Operations, Konstantin Limitovskiy.

"Our immediate support is critical and will contribute to the government's efforts to mitigate pandemic-related shocks, so that the country may continue on its path to sustainable development."

The latest loan brings the AIIB's total support to Pakistan's COVID-19 response to $750 million.

Copyright Business Recorder, 2020