External economic aid surge – BR research



Pakistan’s dependence on external economic assistance – in the form of grants and loans from foreign bilateral, multilateral and commercial sources – continues to grow. According to the latest data from the Economic Affairs Division (EAD) for the period July 2020 to May 2021, foreign economic aid reached $ 12.13 billion, an increase of 63% from 7.45 billion dollars in the same period of the previous fiscal year. With a month to spare, the government has almost hit its budget target of $ 12.23 billion in this regard.

Inflows are dominated by foreign loans, which also account for most of the additional $ 5 billion in external financing received during the year so far. The first and meager element of foreign aid is foreign “grants”. During 11MFY21, this type of aid amounted to $ 232 million (or 2% of total foreign aid). The share of grants in overall aid has declined in recent years, pushing the country to depend on loans.

The top three sources of foreign grants during the period include the US at $ 102 million, with major funding going to Mangla Dam Up gradation and Kurram Tangi Dam. The UK provided a grant of $ 50 million, most of it for the BISP money transfer program and education projects in Punjab. The Multi-Donor Trust Fund contributed approximately $ 40 million during the period, funding programs related to national immunization support and various social sector programs in different provinces.

More than 98% of total foreign aid, or nearly $ 12 billion, during the eleven-month period consisted of borrowing from multiple sources. Multilateral agency loans reached $ 3.32 billion, or 27 percent of the overall aid received by Pakistan during the period under review. Among the main multilateral financiers are the Asian Development Bank, which has lent $ 1.28 billion, mainly for projects in the electricity sector, transport, trade competitiveness, capital markets and to combat Covid-19.

A close number two is the World Bank which provided $ 1.28 billion over the eleven-month period through its IDA and BIRD arms, funding projects in the areas of governance, water and water reforms. irrigation, agriculture, power sector, tourism development, nutrition and urban planning. management. The Islamic Development Bank provided funding of $ 532 million during the period, mainly for the purchase of crude oil, but also for polio eradication and education programs. The Asian Infrastructure Investment Bank has loaned Pakistan $ 252 million in 11MFY21, almost all for the Resilient Institutions for Sustainable Economy (RISE) project.

Meanwhile, borrowing from foreign banks reached $ 3.6 billion in July-May FY21, accounting for 30 percent of the country’s overall foreign aid inflows during that period. These commercial loans, which were contracted for budget support, included disbursements of $ 1.3 billion from ICBC China, $ 815 million from Dubai Islamic Bank, $ 600 million from SCB London, $ 370 million from Emirates NBD, $ 324 million from Ajman Bank and $ 200 million from Credit Suisse / UBL.

Loans from bilateral sources amounted to $ 230 million (2% of overall inflows) during the period under review. China was the main bilateral source, providing $ 178 million in bilateral loans. During the fiscal year, China also provided a “safe deposit for China” worth $ 1 billion (8% of overall economic assistance) for budget support – this deposit is not listed by EAD under bilateral heading. Pakistan also raised $ 2.5 billion from Eurobonds, which represents 21% of the overall economic assistance received during the review period.

Given the size of the external debt obligations, there is no way to seek higher foreign economic aid. However, the federal government must undertake the beneficial reforms identified by the multilaterals to unlock more of their financing, in order to reduce the country’s dependence on expensive short-term borrowing from foreign banks. In addition, provincial governments need to better advocate with bilateral and multilateral donors to access more grant-based finance rather than simply taking out loans.


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