The Asian Development Bank (ADB) has cleared an $800 million policy based loan and guarantee package to help Pakistan improve its public finances and push long-overdue economic reforms. According to reports, the approval came under the second phase of the “Improved Resource Mobilisation and Utilisation Reform Programme” which focuses on rectifying how the federal government collects and spends money.

 

Reports reveal that Pakistan is set to receive a $300 million policy-based loan, which will be utilized to support reform efforts. Moreover, the ADB is offering a $500 million policy-based guarantee which is the first of its kind by the Manilla based lender. 

 

Reports suggest that this guarantee could allow Pakistan to raise upwards of $1 billion in additional financing from commercial banks. This is because the ADB’s guarantee helps commercial banks limit their risk exposure as the ADB will be liable to pay the banks in case Pakistan defaults on its loan agreements.  

 

Emma Fan, ADB’s country director for Pakistan, said the country has made headway in stabilizing its economy. As per reports, she outlined how the country has improved macroeconomic conditions and how the ADB’s program will support Islamabad enact reforms that could “strengthen public finances and lay the foundation for sustainable growth”.

 

The program targets tax reform at its core, reportedly pushing for clearer tax policy, stronger enforcement, and better compliance. Details from reports suggest that the program will also focus on improving how the government manages its cash, tracks spending, and allocates funds. 

 

Measures suggested by the ADB to improve tax policy and compliance include digitalization, making it easier for businesses to invest and to foster an environment conducive to private sector growth.

 

Reports suggest that following the ADB roadmap could allow for a reduction in the budget deficit and debt burden. This could allow the government to spend on education, healthcare, and development projects.

 

The program includes technical support and coordination with other development partners to help Pakistan stay on track. According to the ADB, the focus is on building long term fiscal resilience which could help break Pakistan’s historic trend of persistently needing emergency bailouts.

 

Taking to social media, the finance minister’s advisor confirmed the approval and pointed to the behind-the-scenes effort that made it happen. “Diplomacy led by the Economic Affairs Division and the Ministry of Finance secured majority support at the ADB Board” he said in a post on X (formerly twitter).