Foreign grants: taken for granted?

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SOURCEBusiness Recorder
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The term “development partners” has been in vogue for quite some time in the donor circles of Islamabad. It’s a euphemism for more than a dozen multilateral and bilateral agencies that provide Pakistan with foreign assistance, mostly for social-sector and infrastructure development projects. However, slowly but surely, these partners have developed a predilection for extending more loans and less grants.

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Between FY10 and FY19, Pakistan received roughly $66 billion in total foreign assistance through the official government channel, as per calculations based on the Economic Affairs Division data. Out of this colossal sum, 92 percent was accounted for by “loans”. Only $5 billion, or 8 percent of total assistance, was in the form of “grants,” which don’t need to be returned. This has implications on debt burden.

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During the ongoing decade, as the illustration shows, the share of grants in foreign assistance has been on a gradual decline. Peaking at 26 percent in FY11, grants’ share had fallen to 3 percent by FY19. While there is slight recovery on this front thus far in FY20 – grants amounted to 8 percent of all foreign assistance received in 4MFY20 – the major factors behind the broader trend are worth analyzing.

First, grants have suffered the most on account of waning US assistance, especially since the second Obama term. From $404 million in FY11, grants from US had had slimmed down to $91 million in FY19. America is still the leader in providing grants to Pakistan, albeit the scale has diminished compared to earlier this decade.

Second, since the great floods of 2010, and another major flood the year after that, a sort of “donor fatigue” had started setting in vis-à-vis Pakistan. While grant assistance to Pakistan was center stage in those years, donors had to contend with other humanitarian crises happening in the world at that time. So, it is understandable if, in subsequent years, donors’ grant funding had lower exposure to Pakistan.

Third, the rising concentration of loans in the assistance mix – from 74 percent in FY11, loans accounted for an overwhelming 97 percent of total foreign assistance in FY19 – also reflects the decline of Pakistan’s diplomatic importance for the West. Around 2014, CPEC was first touted as a “game changer” – but the reaction from bilateral donors (US, UK, etc.) was not to pump extraordinary grants to keep Pakistan engaged. Theirs was more a sense of relief that China would finally step in and pick up the tab. China did step up, but the assistance was mainly in the form of loans, not grants.

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And fourth, the Pakistani authorities that engage the donors needed to do a better job of removing the lacuna in the system that snarl up donor funding. Since the 18th Amendment, provinces have become major recipients of foreign assistance, especially in the agriculture, education, health and water sectors. However, smooth release of grant-based funds is affected by lack of timely coordination and cooperation between federal and provincial authorities as well as unsatisfactory project outcomes in the donors’ eyes.

To receive more grant-based funding, the EAD and the provincial governments need to not only address internal procedural and technical bottlenecks, but they must also work together to market new projects better so that they have a reasonable shot at securing grants instead of merely signing loan agreements. It’s not that they will not find an audience. After all, country representatives of major donors have an incentive to find and fund promising projects that help drive their organizational goals. Sell it to them better.

(This news/article originally appeared in Business Recorder on December 5th, 2019)

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