The Asian Development Bank has issued up to $300 million in loan to the government of Pakistan to address energy industry constraints.
Pakistan will use the loan to address financial sustainability, governance and energy infrastructure policy constraints in the energy industry.
The loan will support one of the three phases of the $1 billion Energy Sector Reforms and Financial Sustainability programme which is being led by the International Monetary Fund and includes $80 million in funding from the Export-Import Bank of Korea.
The programme will address the underlying causes of circular debt with a focus on improving inadequate tariff and subsidy systems, strengthening energy accounting, and reducing generation costs.
Inefficiencies within Pakistan’s energy sector cost the country’s economy up to $18 billion, or 6.5% of gross domestic product, in 2015, hence the need to improve policies and energy generation and supply capacity.
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Mr Werner Liepach, ADB director for Central and West Asia, said: “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.
“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.”