ISLAMABAD: Despite a 39 per cent cut in assistance from the United States, the government plans to contract $8 billion foreign loans, including $1.8bn through international commercial bonds and Islamic Sukuk, during 2016-17.

In the budget documents submitted to parliament, the finance ministry has estimated Rs1.2bn US assistance for public sector development projects next year, compared with Rs1.8bn during the outgoing financial year.

In addition, the authorities do not expect any assistance under the Kerry-Lugar programme, which contributed Rs304 million during 2015-16. The US grants for need-based merit scholarships for Pakistani university students are expected to decline to Rs239m against Rs412m during the current fiscal year.

Interestingly, the loans and grants from China are also expected to drop by 58pc to Rs60.4bn from Rs114.45bn.

China does not have any plan to keep funds in Pakistan’s safe deposit _ a practice it has been following in the past to support the country.

This is despite the fact that a majority of the $46bn projects under the China-Pakistan Economic Corridor (CPEC) would be picking up pace during the coming year. Work on a few nuclear power plants in Karachi and Chashma is expected to continue with Chinese loans.

The finance ministry said it would raise Rs105.5bn from international capital markets through sovereign loans during the next fiscal year, almost 50pc higher than Rs52bn bonds issued during the current year. Moreover, the government is targeting Rs79.125bn through Sukuk bond.

The two bonds will be critically required to repay those acquired by the Pervez Musharraf government in 2007 at 6.75pc interest -- maturing over the next couple of months.

Off late, Pakistan has been borrowing, instead of building its own resources, for repayment of past loans, indicating signs of a debt trap that restricts governments to servicing past debt instead of building for the future.

The government had originally planned to raise $1bn from international capital markets during the current year, but decided to limit this to $500m because of a global economic recession and criticism at home for raising expensive loans.

The estimates put total foreign loans and grants at Rs820bn (about $7.8bn) for the next year, about 5pc lower than the current year’s revised external resources of about $8.2bn.

Of the expected international inflows, the government expects about Rs230bn loans and grants for Public Sector Development Programme (PSDP) projects, including grants of Rs21bn. Programme loans for next year have been estimated at Rs134bn. Other loans are estimated at Rs444bn, more than double the Rs190bn procured during current fiscal year.

The Rs208bn foreign loans for development projects would include Rs115bn for schemes of autonomous corporations like the Water and Power Development Authority and National Highway Authority, Rs69bn for provinces and Rs24bn for federal projects.

The World Bank will be the largest lender during the year with Rs155bn, down 13pc from current year’s Rs179.5bn, followed by the Asian Development Bank with Rs110.6bn, down 17pc.

The government will also procure Rs212bn foreign loans from commercial banks.

Published in Dawn, June 13th, 2016