Every country, particularly the developing countries like Pakistan, need foreign assistance in one or other form for its development and accelerating pace of economic growth and undertaking projects, programmes and policies for the welfare and well-being of its people.
External resources or foreign assistance mainly comprise project loans and grants, programme loans and other loans and grants.
Project loans and grants are received from friendly countries and specialized international financial institutions i.e. World Bank, Asian Development Bank, Asian Infrastructure Development Bank and the Islamic Development Bank among several others. Project loans and grants so secured are generally used for procurement of project equipment, supplies and services, etc. Programme loans are provided for budgetary support and these are linked and tied with achievement specific targets and goals of any developing country like Pakistan. Such programme loans not only help in stabilizing foreign exchange reserves but also in generating a rupee counterpart to meet the country’s development needs. Other loans mainly comprise loans secured from the Islamic Development Bank and generated through Sovereign Bonds, Sukuk Bonds etc which are received from non-traditional sources by Pakistan generally for balance of payments as well as budgetary support.
The aim and objective of seeking and securing foreign or external financial assistance, as per information gathered from official sources, can in simple words stated as “promoting economic and social development in the developing countries like Pakistan”. This can also be defined as “administrative transfer of resources from a friendly donor country or one or the other International financial institutions/ agency to the developing countries with more or less specific view to encourage their economic growth”. Foreign aid or assistance can be and generally is in the form of money, goods or technical assistance and can be between two or many countries bilaterally or multilaterally, as the case may be, between countries and financial institutions.
Foreign aid or assistance is also needed and required for meeting both the national economy’s balance of payments gap as well as investment gap. This is why project and technical assistance alone are not considered to be quite sufficient. Furthermore, a large part of the foreign assistance is also needed and sought in the shape of food and commodity aid. Any assistance for projects does not simply help in financing import of capital goods and related services but also meets part of expenditures in the form of local currency. This foreign assistance or aid in the form of project, programme and technical assistance accompanied by commodity imports also help in generating counterpart local currency funds that in turn are utilized for financing the country’s development expenditures.
As a matter of fact, many developing countries like Pakistan do not have sufficient funds on their own for providing public goods and services such as education, transportation systems or clean water and waste disposal facilities for the people at large. Although such goods are essentially needed and required for development, on the other hand their economic rate of return is also so uncertain that private investors are unwilling to provide funds on a large scale. Foreign assistance or aid also substitutes private in those instances, providing the funds for investment in public goods that the international market will not supply to the developing countries or show willingness for supply but rather at a higher interest rate. In principle, foreign aid is a major source of capital, fueling the growth of developing countries and helping in promoting economic and human resources development.
The foreign assistance is secured for development projects of federal and provincial governments and also for autonomous institutions including WAPDA, Pakistan Electric Power Company (PEPCO) and the National Highway Authority (NHA).
Foreign assistance or aid is good, so to say, if it is the result of financing investment appropriately in productive capacity. Increasing output allows debt and interest to be repaid. If the foreign aid is for financing current account deficit and consumption, then there is no net investment and resultant future economic growth as such. In such situations, foreign assistance becomes not only a burden but huge burden depending on the amounts so involved. As such, an effective and efficient external debt management with the objective for ensuring that the foreign assistance is utilized efficiently, effectively and honestly for the purposes secured by the government and not a single penny is wasted or allowed to go down the drain.
Foreign assistance or aid is only useful if it is utilized productively and efficiently, irrespective of from which source it is coming, otherwise developing countries like Pakistan are most likely to face a financial crisis and are caught up in a serious debt trap. This is the situation of economic crisis which Pakistan is currently facing and trying to overcome with the help of friendly countries at the earliest possible.
The sequence of events in financial crisis-like situations can, generally speaking, be a) as debt liabilities rise without corresponding increase in revenue, as the government would obviously need to set aside an increasing share of budgetary resources for debt service, b) the level of debt service would soon begin to adversely affect the routing of the government expenditure, often requiring additional borrowings to meet the rising contractual payment obligations, c) the country would slowly slide into debt trap and for countering such situation more and more borrowings would be required to serve the accumulated debt thus creating a vicious circle, d) the rising debt service obligations would eventually lead to default, THAT IS, the inability of the country to honour its principal and interest payments commitments, and e) the default in such cases is generally followed by prolonged negotiations with the creditors, both individually and collectively such as the Paris Club or London Club, leading to rescheduling/restructuring/writing off of external debt and in these unpleasant developments, the relief programmes usually include reform conditions to redeem the government finances and put the national economy back on the track.
As stated above, foreign assistance or aid commitments made by friendly countries and international financial institutions and banks in some cases every now and then either go up and or go downward causing anxious moments of worries for the economic managers team.
For financial year 2021-22, for which figures are now officially available, Pakistan’s total external loans and grants have been estimated at Rs 2747,691.647 million, including all foreign assistance loans and grants for the Public Sector Development Programme (PSDP)of the Federal Government and outside PSDP.
Total external resources for financial year2020-21 were budgeted at Rs 222,2919.000 million and revised figures were slightly higher and placed at Rs 2286,858.519 million.
Needless to say, the foreign assistance is secured for development projects of federal and provincial governments and also for autonomous institutions including WAPDA, Pakistan Electric Power Company (PEPCO) and the National Highway Authority (NHA).
Pakistan’s 27 development partners, that is, lending countries, agencies and other sources of funds generation in alphabetic order include Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), China, Commercial Banks, EIB, Sukuk Bond, European Union, France, Germany, GAVI , International Bank for Reconstruction and Development (IBRD-World Bank), International Development Association (IDA), International Monetary Fund (IMF), Islamic Development Bank (IDB), International Fund for Agriculture Development (IFAD), Japan, Korea, Kuwait, Multiple Donors Trust Fund (MDTF), Oman, OFID, Organization of Oil Exporting Countries (OPEC), Saudi Arabia, Turkish Exim Bank, United Kingdom (UK) and the USA.
