Government clears $1bn ADB climate loan proposal, defers WB-backed $40m project

ISLAMABAD: The government has decided to seek a $1 billion budget support loan from the Asian Development Bank (ADB) for policy measures aimed at addressing climate-related disasters, while also putting off approval of a separate $40 million World Bank-backed project after objections were raised over the proposed purchase of furniture, laptops and other items at what officials described as excessive rates.

The Central Development Working Party (CDWP) approved the concept clearance proposal for the $1 billion financing under the second tranche of the Climate Disaster Resilience Enhancement Programme (CDREP). The meeting was chaired by Planning Minister Ahsan Iqbal, and the endorsement is expected to help move the proposal towards approval by the ADB.

According to officials, $500 million would be released immediately after approval by the ADB board, while the remaining $500 million is tied to financing needs arising from any natural calamity. Government officials said the first $500 million tranche is expected before June and is intended to help absorb pressure on foreign exchange reserves after repayment of $4.8 billion in loans this month.

Officials also said the government was in the final stage of negotiations for additional loans from Saudi Arabia to offset the impact of $3.5 billion in upcoming debt repayments to the United Arab Emirates.

Finance ministry officials said the initial $500 million ADB loan would mainly come from the bank’s Ordinary Capital Resources, while the government’s contribution would be in the form of policy reforms and budgetary facilitation rather than direct cash counterpart funding. They added that the remaining $500 million under the Contingent Disaster Financing component would stay available for five years to provide timely support in the event of disaster shocks.

Climate vulnerability and reform commitments

Officials said Pakistan remains highly exposed to climate-related disasters, especially floods, droughts and extreme weather, which have caused major economic and social losses. Estimates cited in the proposal put the country’s annual requirement for dealing with climate disasters at between $30 billion and $60 billion.

Documents stated that weak institutional coordination and fragmented disaster governance have been obstacles in responding to such events. The government has also acknowledged the absence of risk-layered disaster risk financing mechanisms and said fiscal vulnerability remained high because of reliance on post-disaster financing.

The proposed debt financing would support institutional capacity building for disaster risk management, implementation of the National Disaster Management Plan III, operationalisation of the National Emergency Operations Centre, risk-based flood management and climate-resilient investment.

Pakistan has also committed to operationalising a disaster risk financing framework with a target mobilisation of Rs200 billion to ensure a timely and adequate financial response to disaster events. Officials said the $500 million contingency component is planned for social protection support to nearly nine million vulnerable households in the event of disasters.

The loan will carry a 15-year term, including a grace period of three years. Officials said the interest rate would be set under ADB’s flexible loan product, while a commitment charge of 0.15% per year would apply to undisbursed amounts.

World Bank-funded project put on hold

At the same meeting, the CDWP deferred approval of the $40 million Public Resource Mobilisation project funded by the World Bank after serious objections were raised over the use of foreign borrowing for non-essential goods and over quoted prices.

Ahsan Iqbal formed a committee headed by the vice chancellor of the Pakistan Institute of Development Economics to examine the project and review the cost of items proposed to be purchased through the loan. The planning minister remarked that billions of dollars had been borrowed in the past and used for activities that did not require foreign funding.

According to the proposal presented before the CDWP, the government planned to hire 20 people through World Bank loan financing on salaries ranging from Rs105,000 to Rs875,000 per month. Officials said the main concerns related to the procurement of laptops, computers and furniture through borrowed funds.

The finance ministry sought Rs770 million for equipment procurement and another Rs428 million for software development. A further Rs285 million was requested for open budget support, web development, content development, format and reports.

Official documents also showed that system development consultants, data analysts and financial reporting experts were proposed to be hired at a cost of Rs485 million, without specifying their numbers or terms of reference. Another Rs285 million was sought for data integration, portal development, process simplification, business process engineering and workflow simplification, while an additional Rs285 million was requested for the use of artificial intelligence in fraud detection.

The details showed that consulting services would account for 38% of the total $40 million project cost, while goods and information systems would consume 36%, taking the combined share to 74%.

According to the proposal, the requested purchases included 15 desktops priced at $3,000 each, eight laptops at $3,000 each, 15 telephones at $1,000 each and $50,000 for furniture. The list also included 10 laptops costing $2,800 each, a photocopy machine worth $5,500 or Rs1.54 million, 10 office tables and chairs at $1,500 each, three sofa sets with tables at $2,000 each and 12 visitor chairs at $1,200 each.