ISLAMABAD - The Asian Development Bank (ADB) and Pakistan have signed $300 million loan agreement for the Public Sector Enterprises Reform Programme.

Pakistan had secured $600 million loan from ADB in last few days, which would enhance the country’s foreign exchange that had started depleting. The ADB last week had already approved $300 million under the Sustainable Energy Sector Reform programme. The ADB’s total loan to Pakistan has surged to over $1.5 billion during the outgoing fiscal year 2016-17.

In latest development, the Manila-based lending agency has approved $300 million to support Pakistan’s efforts to implement major structural reforms and efficiency initiatives to improve the performance, transparency, and financial sustainability of the country’s federal government-run public sector enterprises (PSEs).

Xiaohong Yang, ADB’s Country Director for Pakistan, and Tariq Mahmood Pasha, Secretary Economic Affairs Division (EAD) for the Government of Pakistan, signed the loan agreement in Islamabad.

“Pakistan’s state-owned enterprises provide vital services to the people of Pakistan and to the country’s economy,” said Xiaohong Yang, ADB’s Country Director for Pakistan. “ADB is proud to support the government of Pakistan’s commitment to implement reforms that will ensure financially sustainability of these firms while improving efficiency and cost-effectiveness.”

The financial performance of many federal government PSEs in Pakistan, which employ more than 400,000 people, have been weak in recent years, despite significant budget support from the federal government.

The Program will support government’s efforts to improve the performance of the PSEs by improving corporate governance and accountability, identifying and reducing financial burdens arising out of direct budgetary transfers to PSEs. This will strengthen fiscal sustainability and freeing of finances for priority development projects.

ADB’s assistance is the second sub program under the PSEs Reform Program, bringing total ADB financing for critical reforms in PSEs to $600 million since June 2016.

With ADB’s assistance, under the Public Sector Enterprises Reform Program, the government of Pakistan has carried out significant structural reforms and efficiency initiatives to help improve financial sustainability and operational efficiency of PSEs, and helped improve the compliance to the Corporate Governance Rules 2013.

Many policy actions have been introduced under the program to improve the financial transparency, monitoring, and corporate governance in PSEs. A critical target under the program’s second subprogram is to increase the compliance rate of companies to Corporate Governance Rules to 50%. The restructuring and reform of selected public sector enterprises, particularly Pakistan Railways, have also been initiated. Under the program, government has started publishing the financial performance report of all federal PSEs which will be available on its website.

The Subprogram-2 of the Public-Sector Enterprises Reform Program will help the Government of Pakistan to achieve and sustain reform initiatives aimed at enhancing the performance of Public Sector Enterprises (PSEs) by improving their corporate governance and accountability, and reducing their contingent liabilities. Subprogram-2 will facilitate creating fiscal space for critical development expenditures.

To facilitate GOP’s reform initiatives, ADB approved Subprogram-1 of the Programmatic Approach in June 2016. Subprogram-2 will carry forward all the reforms initiated under Subprogram-1 to its logical conclusion. The Programmatic Approach addresses the following important challenges while initiating critical PSE reforms :

Facilitate coordination across various government departments to (a) implement good corporate governance principles effectively; (b) articulate crucial guiding principles, such as transparency and consistency, on issues related to labor (including retirement benefits); (c) monitor and evaluate PSE performance; and (d) implement critical structural reform in some selected PSEs to get maximum benefits.

Some of the reforms already initiated under subprogram 1, by their very nature, have a long-term implementation cycle. These reforms will need to be carried forward. A continued assistance for such reforms would consolidate and sustain gains made towards better performance of the federal PSEs.