Pakistan takes more external loan

3 July 2015 by Aftab Alexander Mughal


Rachel Docherty

In what is an indication of the government’s inability to introduce promised reforms and address bureaucratic snags, Pakistan has so far received only $4.3 billion – 57% of its annual projections – in foreign economic assistance.

Failure or delay in meeting conditions of foreign loans has resulted in the country receiving less than what it had initially projected, The Express Tribune (TET) reported on 27 June.

Due to less than anticipated economic assistance, many foreign-funded important projects will be delayed this year again, said the officials of the Ministry of Planning and Development. The non-materialisation of budgetary support from the Asian Development Bank and WB World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

will increase the government’s reliance on domestic borrowings, which is already skyrocketing.

As of 12 June this year, the domestic budgetary borrowings increased to Rs894 billion – three times more than the comparative period of last year, according to State Bank of Pakistan.

According to the EAD, the ADB gave $412.4 million in loans from July through May, which was only 38% of the annual estimates of $1.1 billion. The ADB has delayed the approval of $400 million budgetary support for energy sector due to non-implementation of prior conditions. The WB also gave only $353 million or less than one-fifth of annual estimates of $1.9 billion. The WB too has postponed the approval of $500 million for energy sector reforms.

China has provided $846.1 million, which is slightly less than half of the annual estimates of $1.5 billion.

The Islamic Development Bank was the only multilateral institution that gave more than the annual estimates. The country received $990 million from the IDB, which was 171% of the annual projections. The IDB gave a one-year loan amounting to $864.7 million for crude oil imports, which is expensive and the government plans to get it rolled over to the new fiscal year, TET reported.

The United Kingdom was the only country that gave more than what it promised. The UK extended $255.7 million in grant to Pakistan in the outgoing fiscal year as against estimates of $245.7 million. In contrast to this, the United States gave only $95.2 million or 27% of the annual projections, according to the EAD.

A $1-billion loan raised through issuing a Sukuk bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. is also part of $4.3 billion foreign economic assistance that Pakistan received from July through May.

On 27 June, the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
(IMF) has approved release of about 506 million dollars for Pakistan as part of three-year loan programme supported by an Extended Fund Facility (EFF).

The Executive Board of the International Monetary Fund (IMF) on 26 June completed the seventh review of Pakistan’s economic performance under a three-year program supported by an Extended Fund Facility (EFF) arrangement. The Board’s decision enables the immediate disbursement of an amount equivalent to SDR 360 million (about US$506.4 million), bringing total disbursements under the arrangement to SDR 2.88 billion (about US$ 4.05 billion), according to IMF.

The World Bank approved US$188 million on 19 July to improve the reliability and safety of the Guddu Barrage and strengthen the Sindh Irrigation Department’s capacity to operate and manage the barrages.




Aftab Alexander Mughal is National Coordinator, Freedom from Debt Campaign – Pakistan

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