Islamabad has been witnessing an aid bazaar following the passage of the post-NFC budgets of the federal and provincial governments. First it was the World Bank announcing poverty reduction support credit. The Bank said no to Diamer-Bhasha Dam project, but the Asian Development Bank agreed to consider it, if the Council of Common Interests approved. (The first meeting of this vital organ of the federation also had to be externally “assisted”.) There was then the official-level meeting of the Friends of Democratic Pakistan, which looked at projects in various sectors to be reviewed later at the ministerial meeting. What attracted the greatest media attention was the US-Pakistan strategic dialogue to activate the Kerry-Lugar assistance. Last, but not least, the IMF is here to see whether or not the country has done enough to deserve the clean bill of economic health that all the afore-said donors require before disbursing any money.
Additional assistance from the same IMF was sought and given in the last fiscal year when the Friends of Democratic Pakistan failed to commit and disburse what was pledged at the Tokyo meeting. The budgeted pledges amounted to Rs191 billion, but the revised estimates show a disbursement of Rs96 billion. This slippage was a major source of the macroeconomic imbalance experienced in the last year. As nothing was disbursed under Kerry-Lugar assistance either, the country made the mistake of taking the unusual step of using the costly IMF financing for budgetary support. Shaukat Tarin, the banker, was made to believe that it would work like bridge finance. It has only led to a rapid debt accumulation and heavier servicing obligations.
If the budgetary assumptions for the current year regarding revenue, expenditure and internal debt hold, then the country needs external financing of Rs387 billion, which is significantly less than the total external financing of Rs578 billion last year. The larger portion of this amount, Rs201 billion, will be consumed by debt repayments. The budget again expects a hefty amount of Rs82 billion from the Friends of Democratic Pakistan. And if the assistance under Kerry-Lugar Act is activated, the budget forecasts a disbursement of Rs52 billion. Hopes are pinned on the traditional multilateral sources for the balance of the Rs387 billion in the form of project and non-food commodity assistance.
In its size, the external financing plan is far less ambitious than last year. It supports a lower fiscal deficit target of four per cent of the GDP. But will it, given the experience of last year when the actual deficit turned out to be as high as six per cent? Monetary expansion, the inflationary fuel, was also well above the target. Friends in need will be friends indeed in case they help with trade and investment. But friends in aid of illusory goals will likely reproduce a relationship of dependency. Too much time and energy is going into making projects, determining transparent disbursement procedures and creating unnecessary competition between the government and non-government sectors. There is nothing to write home about the access to the EU and the US markets, the establishment of the reconstruction opportunity zones, promotion of investment and transfer of technology. Far from a Marshall Plan, there is just this martial plan against terror.
Published in The Express Tribune, July 23rd, 2010
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