ISLAMABAD: Pakistan has cut its projection of foreign inflows from traditional multilateral and bilateral lenders to only $3.7 billion for the current fiscal year as $6.5 billion in loans remains stuck in the pipeline due to administrative and procedural hurdles.
The $6.5 billion worth of loans stuck at various approval stages are exclusive of the amount that Pakistan is not receiving for already approved and under-implementation projects.
The slow disbursement poses a challenge for the government, which is struggling to bridge the external financing gap despite securing $14.5 billion worth of commitments from three countries.
Finance Minister Asad Umar is expected to go on a two-day visit to the United Arab Emirates (UAE) on Friday aimed at discussing the remaining issues hindering operationalisation of a $3.2-billion oil facility from the UAE.
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The Economic Affairs Division has projected the receipt of $3.7 billion from four multilateral agencies and bilateral sources, lowering them by 15% or $635 million, according to officials of the finance ministry. The inflows from four multilateral agencies have now been projected at $2.4 billion only against $3.3 billion in budgetary estimates, they added.
There is a reduction of $878 million or 27% from these four sources – the World Bank, Asian Development Bank (ADB), Islamic Development Bank (IDB) and Asian Infrastructure Investment Bank (AIIB).
The reduction in inflows from the multilateral agencies is partially offset by an increase in inflows from China, but still the overall inflows from all these sources are now estimated at $3.7 billion.
For the ongoing fiscal year, the government had projected $9.2 billion worth of foreign inflows and of these $4.3 billion was the responsibility of the EAD. The remaining $3 billion was planned to be raised through the issuance of sovereign bonds and another $2 billion through foreign commercial borrowing.
Sources said the finance minister had started taking regular briefings on the foreign loan disbursements.
In first half of the current fiscal year, Pakistan received $2.2 billion in loans including foreign commercial loans. It has now been estimated that the ADB may disburse slightly over $1 billion against initial estimates of $1.4 billion, a reduction of $339 million or nearly 25%. The IDB may disburse $827 million in the current fiscal year, down 19%, and disbursement from the World Bank is now estimated at only $464 million, a decrease of 43%.
But the AIIB inflows are projected at $110 million – slightly higher than the budgetary estimates.
From bilateral sources, China is now expected to release $1.1 billion for project financing, higher by $252 million or 30% from budgetary estimates. The $2.5-billion Chinese commercial loans will be in addition to the project financing.
The finance ministry had shelved the idea of issuing sovereign bonds due to a high cost of financing. But it now plans to float Sukuk bond to meet the financing gap.
The officials said the finance minister had been informed about the reasons behind the declining foreign inflows. The delay in award of contracts for approved projects and a time-consuming process for the approval of PC-Is by the Central Development Working Party (CDWP) and the Executive Committee of National Economic Council (Ecnec) are affecting disbursements for ongoing and pipeline projects.
Project management units were also not very effective while some of the loans remained undisbursed due to dispute over applicability of the Public Procurement Regulatory Authority (PPRA) rules, said the officials. The World Bank is also seeking a new mechanism for making effective its Programme for Results (PfR) financing instruments.
Because of these reasons about $6.5 billion worth of projects remain stuck at various stages, said the officials. The $2.5-billion projects of the World Bank are in the pipeline, mainly due to delay in giving requisite approvals.
These include Pakistan Hydromet and DRM Services project, Khyber Pass Economic Corridor, Punjab cities programme, Punjab green development programme, K-P own-source revenue programme, integrated tourism project and Karachi Urban mobility.
The ADB’s $1.1 billion worth of projects are facing issues like approval from Ecnec, the CDWP and the macroeconomic issues delaying issuance of a letter of comfort by the International Monetary Fund (IMF).
Three projects of China costing $827 million also face problems like loan application and approval of the PC-I. Similarly, over $2 billion worth of projects to be financed by the AIIB are also pending due to administrative and procedural delays.
These include $436 million worth of Lahore Water and Waste Water Management project, $409-million Rawalpindi Ring Road project, $500 million for the Mohmand dam and power project and $640-million Karachi Water and Sewerage Services project.
Published in The Express Tribune, February 8th, 2019.