MANILA, PHILIPPINES - The Asian Development Bank (ADB) will provide Pakistan up to $1.15 billion in new loans to expand its key north-south highway network and for public sector reforms in Punjab province.

"Both of these programs will boost the economy, which generates new jobs and reduces poverty," said Mr. Sean O'Sullivan, Deputy Director General of ADB's Central and West Asia Department.

Up to $900 million is to rehabilitate and expand key sections of the country's main highway network, which starts at the port city of Karachi and runs northward. A lack of adequate roads in Pakistan is leading to a transport bottleneck. It is a constraint to improving competitiveness and attracting private sector investment.

"With trade flows concentrated along one major north-south transport corridor, this program will make road traffic more efficient and reduce transport costs," said Ms Cleo Kawawaki, a Senior Investment Specialist with ADB.

"Cheaper transport costs will increase private sector productivity, which will help deepen and diversify the industrial base, both of which are necessary to provide jobs for the growing population," she said.

The $900 million will go toward a $5.36 billion investment plan by Pakistan's National Highway Authority, which includes upgrading the highway from Karachi to the city of Peshawar, as well as links to the port of Gwadar and the People's Republic of China. Once the road improvements have been completed, travel times between Karachi and Peshawar, a distance of 1,700 kilometers, will be cut from 72 hours to 36.

The upgrade is also crucial for regional trade flows and will allow Pakistan to act as a transit artery for goods moving between Arabian Sea ports in the south and Central Asia and the People's Republic of China in the north.

Funds from the first tranche, $545 million, will be used for two road projects: a 184 kilometer stretch from Faisalabad to Khanewal, as well as a separate 34 kilometer expressway from Torkham, on the Afghan-Pakistan border, to Peshawar. For the subsequent tranches, depending on the appetite from private sector, structures such as guarantees and equity financing can be used under the program to foster public private partnership in the road sector.

In addition to the $900 million, ADB will provide Pakistan with $260.65 million in loans and grants to assist Punjab province pursue reforms that will improve efficiency in the public sector.

Punjab is Pakistan's most populous province and faces a poverty rate at over 20%. However, the provincial economy has staged a major turnaround, from a 0.9% contraction in 2001 to a 7.1% expansion in 2006.

"The province needs continued infusion of public and private investments to keep pace with the growth requirements of the economy, while at the same time ensuring sound maintenance of the investments made," said Mr. Ramesh Subramaniam, Director of ADB's Central and West Asia Department.

For this to happen, Punjab needs major improvements on three fronts - enhancing public sector efficiency, increasing access to and improving the quality of public services, particularly in education, health and water and sanitation, and accelerating private sector participation in the provision of services.

Punjab province has been a pioneer in first generational public sector reforms. Moving forward, the program will support second generational reforms in fiscal management, pension and civil service, and private sector development. It will be designed and implemented through three subprograms from 2007 to 2011, each within about 18 months. A $250 million loan will fund the first subprogram.

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