ISLAMABAD: Pakistan received a paltry $2.94 billion of budgeted foreign assistance in first eight months (July-February) of the current fiscal year, showing a massive decline of over 61pc over last year.

This was despite the fact that Pakistan needed significantly higher inflows to finance a large current account deficit. Resultantly, the government had to mostly bank on short-term deposits and commercial loans worth more than $9bn from bilateral sources — Saudi Arabia, United Arab Emirates and China.

The lower inflows were apparently because of inability of the PTI government to secure an umbrella support from the International Monetary Fund (IMF) and the failure to remove obstacles to donor funded projects. As a consequence, the government also could materialise $3bn targeted to be raised through international bonds.

The latest data on foreign assistance including loans and grants released by the Economic Affairs Division for July 2018 — February showed that foreign inflows this year were down to $2.94bn compared to $7.6bn flows of the same period last year.

The 8-month total inflows against budgeted estimates stood at about just 30pc. The government had estimated about $9.7bn foreign assistance for the current fiscal year (2018-19) including $394 million of grants and $9.3bn as loans. The disbursement in first eight months of last year at $7.6bn had accounted for about 94pc of budgeted estimates of $8.1bn.

These flows, however, do not include more than $7bn contributed by friendly countries — Saudi Arabia ($3bn) and United Arab Emirates ($2bn) followed by $2.1bn from China as special economic bailout package signed off by the PTI government and parked directly into the State Bank of Pakistan as safe deposits. These flows were not part of the budget estimates though.

The data showed Pakistan received about $500m loan in first eight months from commercial loans against budgetary targets of $2bn. The loans from commercial banks included $184m from Dubai Bank, $20m from Noor Bank and $295m from Suisse Bank AG, United Bank Limited and Allied Bank Limited.

Likewise, 8-month receipts from multilateral stood at $2.44bn accounting for less than 52pc against budgetary estimates of $4.7bn. These included $376m from the Asian Development Bank (ADB), $400m from Islamic Development Bank, $160m from the World Bank and about $14m from Beijing-based Asian Infrastructure Investment Bank.

The EAD data put the total grants the country received in first six months at $191m and loans worth $2.156bn. The original budget presented by the PML-N for the current year had estimated $2bn from foreign commercial banks for 2018-19 and the country received about $499m.

The Chinese loan disbursements included $1.2bn out of total bilateral flows of $1.465bn against a target of $1.3bn for the full year. The higher flows were apparently contributed by China which was targeted to provide $840m.

During February, the government received a total of $225m compared to $260m last year.

Officials explained that lower than budgeted flows from commercial, multilateral and bilateral lenders could have substantial short to medium term challenges and could weaken government stance to maintain foreign exchange reserves. They said the budgeted inflows were meant for longer term project and programme financing and flow into the system as part of the balance of payment support compared to safe deposits from the friendly countries. Such funds could be a good sign for balance sheet purpose but actually could not be utilised, an official said.

Officials said the major reason behind lower than estimated disbursements was the inability of the government to strike a deal with the IMF, and could not remove bottlenecks towards implementation of various projects resulting in fewer flows from the World Bank and the ADB. Also, the government could not float planned Eurobond and sukuk that were estimated to fetch about $3bn and hence were replaced by commercial loans.

According to the EAD, foreign assistance estimates have already been revised to $5.6bn instead of $9.7bn and was currently taking rigorous steps to expedite foreign funded projects to streamline foreign assistance flows.

The EAD believed the foreign inflows had been affected by political transition and other issues but the new government was now committed to achieve the revised target by the end of June backed by portfolio reviews and stronger monitoring measures.

The Ministry of Finance said the fiscal year 2018-19 saw a political transition and during that period there was initially suspension of development activities by the Election Commission of Pakistan and for quite many months project approving forums — the Central Development Working Party and Executive Committee of National Economic Council — were not in place.

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

Published in Dawn, March 30th, 2019