Pakistan greenlights $200m ADB loan despite questions over digitalisation project

ISLAMABAD: Pakistan on Friday greenlit another $200 million (Rs57bn) loan from the Asian Development Bank (ADB) for digitalisation, despite serious questions raised by the Planning Commission.

The project was one of seven projects worth Rs116bn cleared by the Central Development Working Party (CDWP) at a meeting presided over by Planning Minister Ahsan Iqbal. He conditionally cleared the Rs57bn Transforming and Digitalising Revenue Administration (TADRA) project, which aims to increase the tax-to-GDP ratio to 13.5pc by 2029 from 11.1pc at present.

The approval comes as the country has already utilised more than $4.7bn in foreign loans aimed at improving revenue collection, while the tax-to-GDP ratio continues to hover around 11pc.

The planning minister “recommended the project to the Executive Committee of the National Economic Council (Ecnec), with the condition that the Pakistan Institute of Development Economics (PIDE), a state-owned think tank, thoroughly review its business model”, an official statement said.

It was placed on record that PIDE had already conducted a study on loans taken by the government to reform the energy sector and tax administration, “which indicates that approximately $4.7bn has been obtained from development partners to reform Pakistan’s tax system.

“Therefore, the Revenue Division should conduct an impact assessment of previous reform interventions undertaken under the Tax Administration Reforms Programme (TARP), Pakistan Single Window (PSW), Integrated Transit Trade Management System (ITTMS) and Pakistan Raises Revenue Project (PRRP) — the four major loan programmes for the Federal Board of Revenue — to determine the impact of the reforms and value for money.”

The project’s clearance was necessary to secure a $200m loan that the ADB’s management had already committed and which required formal approval by its board.

The loan is part of the ADB’s Investment Project Financing (IPF) under its Ordinary Capital Resources (OCR) concessional window, or Asian Development Fund, and carries a standard concessional term of 25 years, including a five-year grace period, at an annual interest rate of 1.5pc to 2pc.

Based on objections raised by various analytical wings of the Planning Commission and views expressed by PIDE, Iqbal “stressed the need for clearly defined and measurable outcomes, particularly in terms of revenue generation, improvement in the tax-to-GDP ratio and expansion of the taxpayer base”, an official statement said. It added that the FBR had assured that the loan would contribute to increasing the tax-to-GDP ratio to 13.5pc by 2029 and bringing more taxpayers into the tax net.

The Planning Commission demanded that, before approving the project and the loan, the FBR should first seek concept clearance on whether the project was synchronised with the FBR’s overall Rs350bn Transformation Plan approved by the federal cabinet. It also sought a matrix of policy actions proposed under the transformation plan, along with the implementation status of each policy action or initiative under previous, ongoing and proposed programmes.

The FBR reported that the project was part of its 2024-28 Transformation Plan for accelerating the digitalisation of the revenue administration ecosystem, enhancing operational efficiency, improving taxpayer compliance, ensuring transparent customs clearance and elevating Pakistan’s global competitiveness.

The Planning Commission had reservations that the project should not proceed without an impact analysis of already executed projects aimed at reforming and strengthening the FBR’s capacity, a gap analysis of existing facilities, a needs assessment and a feasibility study to determine the requirements of the proposed intervention. It also called for quantifiable results-based measurement indicators (RBMIs) and a plan to ensure the sustainability of the project’s activities after its completion.

External experts from the National University of Computer and Emerging Sciences and the National University of Sciences and Technology also highlighted the lack of a gap analysis, a comprehensive data security framework, clarity on the basis of the AI model proposed for system design, and an analysis of the existing system and details of the AI model proposed to be deployed in the new systems.

Among other things, the project also seeks to upgrade hardware and software, including existing 850TB servers, to 3PB as data storage requirements are expected to increase following the implementation of video-camera storage and processing systems on production lines in five major sectors, including sugar, cement, tobacco and textiles.

The CDWP also recommended the “PakSat-2 Satellite System”, costing Rs37.2bn, to the ECNEC for approval. In June, the CDWP had supported the project in principle to deploy a sovereign, secure and ‘below-internet’ mobile communication network for at least 10,000 government users to address gaps that were causing critical information leakages, but had raised technical questions. The PakSat-2 project is aimed at replacing PakSat-IR, which is set to complete its 15-year operational life later this year.

The Planning Commission had advised improving the technical capabilities of the Rs709 million ‘PAKAWAZ Secure Mobile Communication Ecosystem’, which aims to establish a secure mobile communication application capable of supporting video and audio calls, voice and video messages, file and photo sharing, centrally managed contact lists, and text and group messaging, besides application servers, mobile handsets, kill-switch controls and so on. The sources said the National Telecommunication Company (NTC), which had proposed the project, had improved the specifications for an unbreakable security system with maximum integrity to ensure confidentiality, integrity, availability and national data sovereignty.

The project is designed to conform to national security requirements by providing an isolated “private 4G LTE Core Network” that is physically or logically air-gapped from the public internet, addressing shortcomings identified after the recent war with India and lessons learnt from other events across the Middle East.

Besides referring these two mega projects, worth Rs94.3bn, to Ecnec, the CDWP itself approved five projects with a combined cost of Rs21.59bn. These included the Rs5.015bn “Promotion of Olive Cultivation on Commercial Scale in Pakistan Phase-II”. Phase I was implemented in Kallar Kahar, Islamabad and the wider Potohar belt and is now being expanded to Balochistan and the New Merged Districts.

The meeting also approved Rs6bn for a revised project to establish the Dr Ashfaq Ahmad Khan Centre in Basic Sciences across eight national centres, seven of which — covering Artificial Intelligence, Cyber Security, Big Data and Cloud Computing, GIS and Satellite Technology, Automation and Robotics, Applied Mathematics, and Livestock and Genomics — had been completed.

The meeting also approved Rs3.623bn for the “Development of Geospatial Complex (Geo-AI Development & Innovation Hub)” for the development of a space programme. Another Rs5.758bn was approved for “Revamping and Refurbishment of Different Facilities at Pakistan Sports Complex (PSC), Islamabad”.

A water-sector project titled “Improvement of High Frequency (HF) Radios Network of Water Resources Management Directorate (WRMD), WAPDA”, worth Rs338.179 million, was also approved.