Sectoral Analysis: EAD proposes MoF to contain twin deficit by issuing Eurobond/Sukuk

April 30, 2020 (MLN): the Economic Affairs Division (EAD) has given the policy recommendations to Finance Ministry to fill the fiscal and balance of payments gaps by generating funds from international capital markets in the form of issuing Eurobond/Sukuk with longer maturity despite borrowing from foreign commercial banks at prevailing market rates.

EAD recommended to avoid this practice as it is not only expensive but also has very short maturity period for which the incumbent government has to borrow from multiple sources to repay these huge external public debts.

Since July 2014 till December 2019, the government has signed new financing agreements amounting to USD 60.914 billion with various financing partners. About two-thirds of the total commitments were made by multilateral and bilateral development partners.

The Policy Analysis and Development Wing of EAD conducted a sectoral analysis of foreign economic assistance to provide insights into the sectoral composition of foreign assistance received by the country from various bilateral and multilateral development partners from July 2014 to December 2019.

The policy report will help stakeholders prioritize foreign aid and provide guidance to those sectors where foreign assistance is needed. 

Going into the details given by the EAD wing, the country signed financing agreements of USD 24.427 billion with multilateral development partners that constitute 40% or two-thirds of the total commitments.
Within the multilateral group, 95%  of the commitments came from three major financial institutions namely: World Bank with the amount of USD 9.372 billion (38%), Asian Development Bank with USD 8.948 billion (37%), and Islamic Development Bank with USD 4.899 billion (20%).

With bilateral development partners, the government signed USD 12.715 billion (21% of total new agreements) worth of new financing agreements to finance its development projects and implement structural and sectoral reforms in the country.

A breakup of bilateral group shows that majority of new agreements were made by China with USD 6.808 billion (54%) followed by Saudi Arabia with USD 3.365 billion (26%), USA with USD 760 million (6%), UK with USD 500 million (4%) and France with USD 497 million (4%).

It is prudent to mention that disbursements under these agreements are to be made in piecemeal over the period of the next 5 to 10 years depending upon the progress of the project/program activities.

In addition, the government during the said period raised USD 16,272million (or 27% of total new agreements) from foreign commercial banks and USD 5 billion (8%) from international capital markets to support its balance of payments and budgetary requirements. The government also received USD 2.50 billion from China in the form of deposits to enhance its foreign exchange reserves.

Sector-wise analysis of foreign assistance was brought to light the commitments of loans and grants by multilateral and bilateral development partners to fulfill development needs for various sectoral developments.

During the last five years, one-fourth of the total commitments were made in the transport and communication sector received USD 9.276 billion. The major reason behind that Pakistan initiated various projects to improve its road infrastructure under CPEC which made this sector a priority sector. Next in line is commodity financing with USD 7.838 billion, followed by energy and power sector with USD 5.5 billion (16%), governance, research and statistics with USD 3.459 billion (9%).

Despite the huge share of agriculture in our economy, only 4% of the new commitments were made for the agriculture sector. It was also revealed from the analysis that very limited commitments of foreign assistance were made for the social sectors, i.e. education (3%), health (1%), rural development, and poverty reduction (4%).

Based on the analysis, the Policy Analysis and Development Wing of EAD outlined and categorized policy recommendations for ministries and EAD for ease of implementation.

  • Policy Wing suggested the Ministry of Planning, Development and Special Initiatives to amend Guidelines for Project Management, 2008 for bringing clarity and fixing responsibility for the alignment of foreign-funded projects with the overall economic framework of the country. Moreover, make sure these funded projects are fair, equitable, and align with government priorities.

  • It recommended EAD to request development partners to diversify their portfolio and put more focus on the projects in education, health, rural development, and poverty reduction.

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Posted on: 2020-04-30T14:17:00+05:00