Credibility crisis?: PPP govt fails miserably in securing enough foreign funding

Less than half of budgeted estimates of foreign loans and assistance actually realised.

ISLAMABAD:

Pakistan could obtain only $1.8 billion in foreign funding during the first nine months of the ongoing fiscal year, owing to the last government’s failure in floating a $500 million Euro bond and less-than-anticipated funding from all major international lenders. Foreign loans are budgeted as a part of the government’s overall projections for the balance of payments for the year.

Receipts for the July to March period totalled just 47.6% of the annual budgeted estimate of $3.8 billion, according to documents released by the Economic Affairs Division. Out of the $1.8 billion, a sum of $228 million was received in grants, while the remaining was accounted for by different loans.

The United Kingdom provided the largest component of aid, as it gave $100.8 million in grants. The UK had promised to give $97.1 million for the full year. That sum was higher than even the US, the country’s coalition partner in the war against terror, as the Obama administration disbursed only $70.4 million under the Kerry-Luger package according to official documents. The disbursements from the US came to less than 40% of the annual budgeted amount of $179.7 million.

The US had committed $7.5 billion over five years under the Kerry-Luger package, but the documents show a wide gap between commitments and actual disbursements.

Analysts have revised their estimates after the fresh data was released: they are now anticipating an external financing gap to the tune of $1.5 billion – $500 million higher than initial estimates. That shortfall is likely to bring the rupee under further pressure due to the rapid depletion of foreign currency reserves, they added. Pakistan has already begun negotiations with the International Monetary Fund (IMF) for a second bailout programme in less than five years.

According to the documents released, the PPP government failed to float a $500 million exchangeable bond, which was to be backed by shares of the Oil and Gas Development Company. The debt crisis in the euro zone and deteriorating domestic economic conditions restrained the last regime from going to international debt markets, officials said.

Similarly, the flows of funds from Japan, the Asian Development Bank, the World Bank, the Islamic Development Bank and other bilateral lenders trickled in far below estimates.

Japan had promised $444.4 million in loans and grants, but instead gave $114.7 million or 25.8% of the annual assistance promised. The World Bank, on the other hand, gave only $326 million as against annual commitments of $762 million. The disbursements came to only 42.5% of annual commitments, according to the Economic Affairs Division.

The Islamic Development Bank gave only $315.3 million or 53% of the annual assistance promised, including an expensive loan worth $256 million. The ADB disbursed $277 million or 61.3% of annual budget estimates.

International lending agencies had suspended additional budgetary support to Pakistan besides slowing releases of funds in the pipeline due to the last government’s inability to implement taxation and energy reforms. During the ongoing dialogue, the IMF told Pakistan that it will provide fresh loans only to the extent of what Islamabad already owes to the Fund. For additional funding requirements, the Fund asked negotiators to separately talk with the World Bank and the Asian Development Bank.

Authorities estimate a financing gap of $6.5 billion for fiscal 2013-14. If the IMF and Pakistan agree on the terms for a new programme, the Fund will give Islamabad $3.6 billion for the first year. Pakistan will separately negotiate with other lending agencies in order to bridge the $3 billion gap.

Published in The Express Tribune, May 11^th, 2013.

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