Enhanced Inspection Department lauds Asian Development Bank's five-year Country Partnership Strategy for Pakistan as highly effective.
A DB's Assessment: A Mixed Review on Pakistan's Progress
Pakistan's five-year development plan with the Asian Development Bank (ADB) receives a 'highly satisfactory' rating, but faces hurdles in debt reduction and housing affordability
The Independent Evaluation Department (IED) recently evaluated the ADB's five-year Country Assistance Program (CAP) for Pakistan, worth $15.1 billion. It was given a thumbs-up, but certain targets, such as power sector debt reduction and housing affordability, are proving to be tricky.
The ADB's performance assessment covers sovereign and non-sovereign operations that were completed, ongoing, or approved during 2020-2024. The evaluation looked at relevant, efficient, effective, and sustainable aspects of ADB activities in Pakistan, using the 2024 Guidelines for the Country Assistance Programme Review and Validation.
The ADB's portfolio facilitated power sector reforms, focusing on making the sector more sustainable and efficient. The Partnership Strategy (CPS) aimed to bring the annual circular debt flow in the power sector below Rs50 billion by 2025. While progress has been made with the circular debt dropping to Rs83 billion, it is unlikely to reach the targeted figure by 2025. The main reasons? Persistent issues such as high power generation costs with imported fossil fuels, transmission and distribution losses, low collection rates, governance concerns, and tariff adjustment delays.
To improve housing affordability, the CPS aimed for a mortgage-to-GDP ratio of 0.4% by 2025. After significant efforts, the ratio reached only 20%, standing at 0.3%. This is due to a barrage of financial, regulatory, and infrastructure challenges, as well as economic instability.
The ADB's intervention in Pakistan was guided by the country's critical development needs and the government's Vision 2025. The ADB's strategy aimed at improving economic management, building resilience, and boosting competitiveness and private sector development – the three pillars of the 2021-2025 CPS. The program supported federal and provincial long-term goals.
Still, the ADB's efficiency rating is impressive, thanks to the swift delivery of results and impressive efficiency indicators such as average time from concept approval to first disbursement (22.4 months) and an average disbursement rate (125%).
To meet the challenges ahead, the country will need to push harder to address the lingering power sector debt, maintain access to affordable housing, and overcome systemic issues in both sectors.
Sources
- "ADB to Provide $330m Loan for Social Infrastructure and Urban Housing in Pakistan." The News. 2023. https://www.thenews.com.pk/latest/711323-adb-to-provide-330m-loan-for-social-infrastructure-and-urban-housing-in-pakistan
- "Circular Debt in Power Sector." State Bank of Pakistan. 2023. https://www.sbp.org.pk/CircularDebtInPowerSector.aspx
- "Pakistan's Economic Recovery: IMF approval Remains Elusive." The Express Tribune. 2023. https://tribune.com.pk/story/2066316/pakistans-economic-recovery-imf-approval-remains-elusive
- "Pakistan Economic Survey 2021-22." Ministry of Finance. 2022. https://www.finance.gov.pk/sites/default/files/2022-07/Pakistan Economic Survey 2021-22 Web Version.pdf#Page=1
- "Power sector Bailout: Implications for Pakistan's Economy." Sustainable Development Policy Institute. 2022. https://sdpi.org/wp-content/uploads/2022/12/FHG_Power-sector-Bailout-web.pdf
- Obstacles persist in reducing circular debt within the Pakistani power sector:
- Gigantic existing debt burden: Power sector circular debt amounts to a staggering Rs2.4 trillion.
- Structural financial issues: Inefficiencies in state-owned power entities and Independent Power Producers (IPPs) complicate reforms and require long-term systemic changes.
- High debt servicing costs: High interest rates on outstanding debts exacerbate the debt cycle.
- Limited fiscal space and economic constraints: Pakistan's challenging economic climate and ongoing IMF reforms restrict the ability to sustain government subsidies and bailouts.
- Maintaining affordable consumer costs: The government aims to reduce debt without raising electricity bills, using existing debt service surcharges.
- Investor confidence and sector reforms: Persistent circular debt impedes investor confidence, complicating the process of attracting private investment and improving infrastructure.
- Barriers to affordable housing in Pakistan include:
- Financing constraints
- Regulatory and land issues
- Insufficient urban infrastructure and service delivery
- Volatile socioeconomic factors affecting demand for affordable housing.
Because of the total content limit, additional enrichment data about the issues facing power sector debt reduction and housing affordability in Pakistan was not provided in this rewrite.
- Despite the Asian Development Bank's (ADB) successful interventions in Pakistan, addressing issues like power sector debt reduction and improving housing affordability continue to present challenges.
- A significant impediment to power sector debt reduction is the existing debt burden, which amounts to a staggering Rs2.4 trillion, alongside structural financial issues in state-owned power entities and Independent Power Producers (IPPs).
- Improving housing affordability in Pakistan faces barriers such as financing constraints, regulatory and land issues, insufficient urban infrastructure and service delivery, and volatile socioeconomic factors affecting demand for affordable housing.
- To achieve growth and overcome the aforementioned challenges, Pakistan must invest in addressing lingering power sector debt, ensuring access to affordable housing, and implementing systemic improvements in both sectors, ultimately relying on increasing investments, finance, and private sector development to revitalize its business and real-estate landscape.
