Pakistan needs introduction of aid effectiveness to let the people know where the foreign inflows are being spent as the government has set a record by obtaining $14.8 billion in loans from various International Financial Institutions (IFI) and other bilateral donors during the last three and half years in power.
Accountability of foreign financing
An official source said that since the government never makes public, any assessment on the loans taken for various projects the public and donors remain unaware of their impact. He said given the track record of the government departments in executing projects under foreign loans, it was advisable that the government starts strengthening monitoring and execution of projects. However a source in an IFI informed that sometimes Pakistan obtained loans only for the balance of payment and even the IFIs were aware of the actual purpose but since they were lending institutions they provided money. The source said that many of the highway projects were slow moving and their cost increases over time and there was no assessment on their economic impact after completion. All of these are impact making projects but the government has so far not made public any assessment of their impact. Red tape in departments has already delayed the implementation on two independent power projects having cumulative capacity of 900MW, for the last two years in Punjab which would have addressed power issues in the province.
ADB report highlighting incompetence
The ADB has recently started making public the completion reports on various projects mentioning its assessment. An ADB report on $25 million loan for infrastructure development granted in August 2005, finds the performance of bank’s staff and Pakistani officialdom unsatisfactory, and advised the banks to avoid granting of technical assistance loans with multi-sector, multiagency, and multilocation scopes to Pakistan. ADB’s report says the loan was not efficient in achieving its desired results. Insufficient monitoring and tardy responses were the two notable weaknesses. ADB staff could have acted earlier, especially by canceling the loans. This would have saved money, in part by reducing administrative expenses. It noted that the executing agency, Planning and Development Division (PDD) lacked the capacity to assist the implementing agencies delaying the issuance of consultant mandates, thus slowing down work on some priority subprojects. The choice of PDD as the executing agency was a mistake. The PDD lacked qualified staff, access, and track record. The setting up of new units to manage consultancy contracts does not work and should not have been proposed in the first place.
Foreign debt and fiscal mismanagement
Pakistan’s debt dynamics have undergone substantial changes in the last three years. Higher fiscal deficit led to accumulation of huge debt in absolute and relative terms. The debt profile moved towards shorter end of maturity as desperation to finance deficit through domestic sources owing to inadequacy of external financing. It says therefore, developments in both external and domestic debt are of key concern to debt management. Excessive increase in debt has caused problems for Pakistan in the past, while imprudent domestic borrowing plagued the economy during 2010-11. Prudent and efficient debt management is required not only to ensure that present debt levels are kept under control, but also to manage future repayment obligations. Prudent debt management practices could not undermine the importance of prudent fiscal and monetary policy. Even best debt management may not by itself avert any upheaval in case of poor macroeconomic policy
sequencing.
