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Activities in Pakistan

ODA Loan

What is ODA Loan?

Japanese ODA loan (also called Yen Loan) are long-term low interest rate loans advanced to the developing countries and have the liability of being paid back. Assistance can be given to major projects of developing countries that generate larger impact on the economic growth, environmental improvement and social development of the countries, which are indispensable for achieving MDGs. The obligation to repay Japanese ODA loans gives an opportunity to the recipient countries to develop an incentive to recover the investment cost as much as possible. This encourages the countries to make efforts to ensure the sustainability of the development projects and leads to the attainment of the MDGs and their sustenance.

Pakistan, with the economy and population growing, faces such development challenges as poverty reduction, acceleration of economic growth and improvement of governance. For these reasons, we place high priority on such fields as the ensuring of human security and human development, development of a sound market economy, and the achievement of balanced regional socio-economic development. When providing such assistance, we will take full account of gender, environment and governance as cross-sectional issues. At the same time, we endeavor to provide technical assistance based on Japan’s experience and expertise.

Following are the main types of ODA Loans:

1. Project Loans

Project Loans, which are predominant among ODA loans, finance projects such as roads, power plants, irrigation, water supply and sewerage facilities. The loans are used for the procurement of facilities, equipment and services, or for conducting civil works and other related works.

2. Engineering Services (E/S) Loans

This type of loans is for engineering services, which are necessary at survey and planning stages of the projects. The services include reviews of feasibility studies, surveys on detailed data on project sites, detailed designs and preparation of bidding documents. Completion of feasibility studies or their equivalent are prerequisite for this type of loans.

3. Financial Intermediary Loans (Two-Step Loans)

Financial intermediary loans are implemented through the financial institutions of the recipient country based on the policy-oriented financial system of that country. These loans provide funds necessary for the implementation of designated policies, such as the promotion of small-and medium-scale enterprises in manufacturing, agriculture, and other specified industries and the construction of facilities to improve the living standards of the poor. These loans are known as "two-step loans" because there are two or more steps before the end-beneficiaries receive the funds. Under this type of loan, funds can be provided to a large number of end-beneficiaries in the private sector. Since these loans are implemented through local financial institutions, they also serve to strengthen the operational capabilities of these institutions and to develop the financial sector of the recipient countries.

4. Commodity Loans

This type of loans aims for both supports for balance of payments and economic stability of recipient countries. These loans are often used to import commodities such as industrial machinery and raw materials, fertilizer and pesticide, agricultural and other kinds of machinery, which are agreed upon beforehand between the Japanese and recipient governments. Also, local currency (counterpart) funds, paid by importers to governments to obtain foreign currencies provided under the loans, are used for economic and social development.

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