The recently released Annual Report on Foreign Economic Assistance for the year 2019-20 is a welcome addition to official data sources. However, it hides more than it reveals; and is only useful in identifying and understanding trends. The current report covers a single year. As such, no assessment can be made whether the numbers presented reflect an improvement or a deterioration over the years.
It would have been immensely helpful if the data had been presented in 5-year intervals from the year 2000. Needless to say, the relevant ministries do have this data. According to the Report, “The Rules of Business 1973 empowers the Economic Affairs Division (EAD) to, inter alia, compile and analyze F-E-A obtained from all multilateral and bilateral sources. Accordingly, EAD maintains a database called DMFAS …”.A glaring omission, stated in a footnote, is of data relating to IMF, Pakistan Banao Certificates and foreign portfolio investment in the Government’s domestic securities. The Report, as such, presents a partial picture of national indebtedness.
The Report identifies the sources of foreign economic assistance as ‘development partners’. This is a jaundiced euphemism. The fact is that they are creditors, who have acquired the power to dictate economic policy and their ex-employees are controlling all the economic agencies of the country.
The Introduction to the Report should be music to anyone’s ears and merits paraphrasing. It defines foreign economic assistance as “government aid designed to promote the economic development and welfare of developing countries”. Further, it states that “Government of Pakistan has been receiving foreign assistance mainly to achieve two major strategic objectives: (a) sustainable social and economic growth as envisioned in its development plans to reduce poverty and inequality; and (b) to address the fiscal imbalances for enhanced macroeconomic stability. Reality however, is somewhat different, with objective (b) appearing to edge out objective (a) and, thereby, deF-E-Ating the very purpose of foreign economic assistance as defined.
The Report presents current year’s commitments and disbursements of foreign economic assistance. Amounts committed are disbursed over a specified time span, while disbursements are for a particular period. Nevertheless, commitments is an important indicator reflecting the trajectory of indebtedness. The loans obtained are from three broad sources: multilateral and bilateral creditors and commercial banks. Loans from the former two are generally on concessional terms, while that from the latter are expensive – at times exorbitantly so. Another glaring omission, herewith, is the complete absence of information on terms of loans acquired.
The Government has signed on to new commitments of USD 10,447 million in the year 2019-20 and disbursements for the year amount to USD 10,662 million. Alarmingly, one-third of the amounts in both cases are from commercial banks; the stated reason being to “refinance maturing commercial debt of past periods”. Even more alarming is the fact that USD 7,208 million or 69 percent of committed amounts and USD 7,890 million or 74 percent of disbursed amounts is for budgetary support; i.e., financing the government’s fiscal deficit. The composition of debt servicing is also disturbing. Of the USD 10,662 million disbursed in 2019-20, USD 10,395 million or 97.5 percent is consumed by debt service obligation during the year, with 2.5 percent left over for “development and welfare”. In other words, debt has been acquired to repay past debts.
The direction of debt service payments is distressing. Major creditors whose debt has been serviced in 2019-20 are Islamic Development Bank (IDB), Asian Development Bank (ADB), World Bank and China. Two of them – IDB and ADB – have been paid over USD 1,000 million each, amounting to 19.5 percent of total debt servicing for the year 2019-20. Two others – the World Bank and China – have been paid USD 765 million and USD 704 million, respectively, and which amounts to 14 percent of the total. Servicing of Bonds, information for which has not been provided, has cost USD 1,396 million or 13 percent of the total. All of the above sum up to 46.5 percent of the total. Payment to commercial banks – the expensive part of the loan portfolio – equal the total of all of the above: USD 4,900million or 47 percent.
The only silver lining in the Report is that the loan outflow of USD 4,435 million to commercial banks has exceeded loan inflow of USD 3,373 million, indicating that the burden of commercial loans has reduced somewhat. And further that no new Bonds have been floated.
In sum, however, the lofty objectives of foreign economic assistance: “economic development and welfare …” and “sustainable social and economic growth … to reduce poverty and inequality” have been relegated to a lower priority, if at all.
(The writer is an economist. The views expressed in this article are not necessarily those of the newspaper).
Copyright Business Recorder, 2020
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