Pakistan looks for lenders’ largesse

Islamabad hopes to receive $9.5 billion in foreign assistance

ISLAMABAD: Stagnating foreign investment, repayments of foreign debts and collapsing tax machinery have increased the country’s dependence on foreign assistance, aimed at balancing the budgetary books.

While the country is pinning high hopes on foreign lenders, it has estimated receiving $9.5 billion – the highest ever inflow in a single year – in foreign economic assistance for the next financial year.

China will be the leading lender expected to contribute $3.7 billion or 40% of the total foreign inflows, in an indication of growing bilateral economic ties.

However, the United States’ contribution is estimated at just $160 million or precisely one per cent of the expected annual inflows, said sources in the Ministry of Finance and Economic Affairs.

Similarly, European countries including the European Union are expected to contribute $292 million –less than 2% of the annual estimates.



The new financial year, 2015-16, will begin from July this year and the government is now negotiating the fiscal framework with the International Monetary Fund (IMF) in Dubai.

The estimated amount of $9.5 billion is roughly one-tenth higher than what the government has expected to receive in the outgoing financial year 2014-15, said the sources.

In the outgoing fiscal year, the government had planned to receive $8.6 billion in foreign economic assistance.

Over a $2-billion IMF loan that the country will receive next year is not part of the calculations, as it is booked on State Bank of Pakistan’s balance sheet and can only be used for balance of payment support.

The disbursements of $9.5 billion estimated foreign economic assistance would depend upon the government’s ability to ensure progress on development projects, meet conditions attached with the budgetary support loans and capital market conditions in the United States and Europe.

The PML-N government wants to acquire these loans to finance the budget and meet the shortfall in external payments including repayment of previous loans.

According to an eye-opening study of Tax Reforms Commission, taxes collected by over two-thirds of the total field formations through assessments are even less than the total administrative costs incurred. Ninety-five per cent of the total income tax can be collected even after closing down the Federal Board of Revenue (FBR).

The office bearers of the country’s chambers are publicly accusing the FBR of unchecked corruption.

The government has hoped that China will extend $3.7 billion or 40% of the annual assistance in loans for budgetary support. The Chinese economic assistance will be for China-Pakistan Economic Corridor projects in addition to funding civil nuclear power plants.

The World Bank (WB) could be the second largest lender, as the government has estimated receiving $1.4 billion or 14% of the annual economic assistance in the next fiscal year. The WB’s main contribution will be for Dasu hydropower project.

The Asian Development Bank (ADB) – which was until recently the largest lender – is expected to extend one-tenth of the annual assistance or $1.03 billion in the next fiscal year. The Islamic Development Bank (IDB) may provide $1.2 billion or 12% of the annual assistance. The IDB’s mode of financing is very expensive and was not preferred by the previous governments due to that reason.

The US will provide $160 million under the Kerry-Lugar Act, the entire amount in grants. The United Kingdom’s economic assistance has been estimated at $183.2 million, European Union, $22.8 million, while France and Germany are expected to provide $14.3 million $71.8 million respectively.

Japan’s economic assistance has been estimated at $187.5 million or one percent of the annual estimates.

Published in The Express Tribune, May 7^th, 2015.