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You are here: Home»Home»BR Research»Pakistan Macroeconomics»Political economy & socioeconomics»Celebrate aid-dependency?

Many might look at the $650 million and $125 million loans approved by the Asian Development Bank and World Bank through rose-tinted glasses. After all, they’re an extra brace on the crutches of fiscally-limped Pakistan. At least, so it seems.

But the hitches and ‘ifs and buts’ attached to such loans is what makes one revisit the apparent idealism in such assistance.

Reconstruction of roads, bridges, irrigation systems, etc. with the help of ADB loans may appear quite tempting, as do the cash grants provided by WB, but there is a question mark on whether these will be disbursed in due time.

Even though Salman Shah, former Finance Minister, cautioned that the disbursement of loans from the World Bank will be undertaken after approval from the IMF, he was also hopeful of the situation. “Since these are special expenditures for a cause, I don’t think the IMF should object because this is a humanitarian cause,” he said.

Concerns abound regarding the timeliness of disbursements the repercussions can be significant on the domestic economy. “If external financing is not provided in time, authorities have to reply on domestic sources, and in Pakistan’s case, this has largely been borrowings from the State Bank. This has a significant inflationary impact,” said Dr Ashfaque Hasan Khan, Director General & Dean NUST Business School.

If the past is anything to go by, the disbursement of loans from international donor organisations have not been very prompt.

According to a publication on the Pakistan Earthquake 2005 by the Islamabad Policy Research Institute (IPRI), a Livelihood Cash Grant Scheme was initiated by the World Bank (WB) to distribute Rs3,000 per month for six months amongst 250,000 affected households. Against the pledged Rs8 billion for the scheme, Rs2 billion had been disbursed within a year, while further disbursements were still in progress, the IPRI highlighted.

Yet, local media sources also claimed that over 70 percent of the $870 million pledged by the WB for earthquake-related support had been disbursed in about a year.

Further, the ADB website also claims that, “Pakistan has received more than $20 billion in loans since joining ADB in 1966, with more than $15 billion disbursed as of 31 December 2009,” indicating that a majority of the committed assistance does reach Pakistan, albeit, perhaps, not promptly enough for the country’s requirement.

Aside from international organisations, timekeeping ado, the capability of local authorities also leaves a lot to be desired. “If media reports about the government’s inadequate relief efforts for the affected area are true, it reflects poorly on its management abilities,” said Shah. “Having local governments with proper systems for every district could have helped at this point in time,” he added.

But more pertinent than all this is the subject of whether loans for rehabilitation will actually do good for the country or do they bring yet another bundle of derived problems?

Khan believes the latter to be the case. Emphasizing that the authorities could have extracted needed expenditures for flood rehabilitation from the FY10 budget, he said that measures such as earlier imposition of the flood surcharge, creating a leaner ministerial structure, using a portion of funds allocated for the IDPs of NWFP, etc could have helped finance the relief and reconstruction costs.

“Even funds allocated by provincial governments for the Public Sector Development Programme (PSDP) could have been diverted for post-floods rehabilitation work, especially since a significant part of PSDP funds are underutilised because of capacity limitations. But we preferred debt amongst all options,” Khan lamented.

Given the persistent fiscal pressures, more debt and consequent debt-servicing, even on soft terms, may become back-breaking for Pakistan. Yet, as Khan said, “The officials don’t have to repay the debt from their own pockets; they may remain indifferent.”

 


 



 
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Annual2013/14
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