AIIB Loan.

On Tuesday, the Central Development Working Party (CDWP) approved the terms for a new $500 million loan that will be used to distribute regular cash grants among the poorest, pay subsidies on fuel and rich exporters. This is a support loan from the Asian Infrastructure Investment Bank (AIIB) which is on top of the $1.5 billion loan approved last month from the Asian Development Bank (ADB).

These two loans are being used to finance the $2.4 billion Countercyclical Expenditure Plan to cope with exogenous shocks and offset the impact of global super commodity prices on the poor. According to reports, the loan will have a maturity period of seven years and an interest rate of around 4.9 percent. These terms and conditions are quite unfavourable given our current situation, as the maturity period is one of the shortest and the interest rate is quite high, even more than some foreign commercial loan banks.

Officials however argue that this loan is still cheaper than market lending and that the government has limited options to meet this fiscal year's estimated $34 billion foreign financing requirements. Pakistan of course is suffering from the commodity shocks due to the Ukraine war, and on top of that is dealing with inflation, rising food insecurity, and the devastation caused by the recent floods.

The largest expense is $1.1 billion which will be used to provide...