Pakistan to get $2.6b infrastructure fund

ISLAMABAD — The World Bank and the Asian Development Bank (ADB) have jointly offered $2.6 billion to help establish "Infrastructure Fund" for improving Pakistan's weak infrastructure especially relating to roads, ports & shipping, airports and railways.

By From A Correspondent

Published: Wed 29 Jun 2005, 10:19 AM

Last updated: Thu 2 Apr 2015, 2:49 PM

However, informed sources said resistance was being shown from elements within the government against the creation of a multi- billion dollar Infrastructure Fund as it could lead to negative macro-economic consequences. Some senior official economists and experts have proposed the creation of infrastructure fund "outside the budget" through the launching of public private partnership to avoid increase in the budget deficit.

The Asian Development Bank (ADB) has agreed to initially offer $2.6 billion by also associating with itself some other donors including the World Bank to help establish this new infrastructure fund. Sources said that development expenditure of the government was also bound to increase if the proposed fund was created within the budget and would lead to a violation of the Fiscal Responsibility Law that had been formally approved by the Parliament. "If we create this infrastructure fund within the budget, it will also increase public debt to GDP ratio and it will have a crowding out impact on investment", said a source.

The Indian government, he said, was also being advised by its experts and economists "not" to launch any infrastructure fund within the budget as it will further increase the country's overall budget deficit and the development spending. India plans to create $5 billion infrastructure fund which will be stretched to $25 billion in five years. The Indian government was told that India's budget deficit, which was already 10 per cent of the GDP would further shoot up along with the increase in the public debt to GDP ratio in case of an infrastructure fund to be set up within the budget.

According to the plan, Prime Minister Shaukat Aziz's government wanted to create an infrastructure fund as a ring fenced Special Purpose Vehicle (SPV) Account to be managed by the Ministry of Finance/Fund Managers. The Fund would act as a financial intermediary that would extend funding in shape of guarantees to fill viability gap of a project during its operation.

Private sector operating project would be able to encash the guarantee for meeting its shortfalls during the operation phase of the project and once the project enters into profit making, the encashed amount would be repaid to the Fund.

The Fund will be initiated through contributions by the government and supplemented by financing from the international development partners including the World Bank and the ADB. The infrastructure fund will be used for pre-feasibility studies, equity contributions if required, guarantees and grants, in exceptional cases to fill the gap between the income and the expenditure. Through the proposed infrastructure fund, the government planned to decentralise the actual implementation of the projects. Transaction capabilities will need to be developed at the provincial and district level to structure transactions in a way that can be taken to the market by creating bankability and business value. The capacity will include taking the project through an entire project life cycle with technical assistance from the government.

The project after scrutiny jointly with the sponsoring/executing agencies will be put to the Central Development Working Party (CDWP) and the Executive Committee of the National Economic Council (ECNEC) for clearance and then implemented through line ministries.

The CDWP and the ECNEC in taking decision would be informed of fiscal space available for investment at any given time and made aware of the true costs and exposure in projects by getting credible estimates for contingent liabilities and retained costs. Concession agreements will be concluded by the ministries/ executing agencies with the private operators.

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