ISLAMABAD: The government expects 42 per cent slump in foreign exchange inflows and has revised the target for current fiscal year at $5.6 billion against $9.7bn set under the 2018-19 budget approved in May 2018 mainly because of the delay in finalisation of an International Monetary Fund programme.

“The original estimates [of foreign assistance] have now been revised to $5.6bn,” said the Ministry of Finance on Tuesday, adding it was currently taking rigorous steps to expedite foreign-funded projects to streamline flows.

The ministry report noted that foreign inflows had been affected by political transition and other issues but the government remains committed to achieve the revised target by June backed by portfolio reviews and stronger monitoring measures.

“The government is cognisant of the slow pace of disbursement of external economic assistance during the first six months of the current financial year”, said the ministry in response to a Dawn report on slow foreign inflows in first half of the year citing delay in disbursements under World Bank portfolio. The ministry said the pace of disbursement is usually slow during the first two quarters.

The finance ministry said the fiscal year 2018-19 saw a political transition and during that period there was suspension of development activities by the Election Commission of Pakistan. Moreover, approvals for projects were also delayed as Central Development Working Party and Executive Committee of National Economic Council were not in place.

Consequently, various projects were adversely affected. “The World Bank financing was also affected due to introduction of hybrid financing instruments by the bank and capacity constraints of the implementing entities to achieve compliance with bank procedures”, the finance ministry acknowledged.

The ministry said the government was confident of achieving the revised target of $5.6bn by June. For this purpose, a vigorous monitoring and portfolio review activity is currently being taken on an ongoing basis. “Project-by-project specific issues are being addressed with relevant stakeholders both at federal and provincial levels. The finance minister is taking monthly portfolio review meetings unlike the past when such meetings used to take place quarterly”, it added.

Furthermore, the government is not relying on short-term commercial loans which are usually expensive and add to debt vulnerability of the country. On the contrary, friendly countries have placed deposits with the central bank at rates which are much lower than the commercial borrowing rates. These deposits are on one hand augmenting official foreign exchange reserves while saving significant cost of financing the reserve build up on the other, the ministry said.

It added that short-term commercial borrowing was not a substitute for development financing and government resorts to short-term commercial borrowing only as a contingency measure to stabilise foreign exchange reserve while development financing was inexpensive and long term source of financing for completing development projects in multiple sectors of economy.

It said the actual inflows from multilaterals and bilateral sources in the last fiscal year were $4.784bn as against budget estimates of $6.094bn. Budget estimates of external economic assistance through bilateral and multilateral development partners for the ongoing fiscal year are $4.6bn. During the first seven months, $2.3bn has been received as against $2.6bn during the same period last year.

Under the 2018-19 budget estimates presented by the previous government, estimates of foreign assistance were set at $9.7bn for the year, including $394 million as grants and $9.3bn as loans. The ministry said the government had not budgeted estimates of $2.3bn from the World Bank during the current year.

Published in Dawn, March 13th, 2019