The budget for fiscal year 2011-12 envisages a total of 414 billion rupees (4.8 billion dollars) in external assistance (loans as well as grants). This amount is higher than the 387 billion rupees (4.5 billion dollars) budget estimates of 2010-11 and significantly higher than the 290 billion rupees (3.3 billion dollars) revised estimates for 2010-11. The critical question is whether the estimates for this year are realistic.
It is significant that the budget document does not include any tranche release from the International Monetary Fund (IMF) under the stalled Stand-By Arrangement (SBA) with over 3.2 billion dollars in two tranche releases still pending. Be that as it may, sources in the Ministry of Finance have indicated that the government is committed to meeting all the remaining SBA conditions that include reforms in the power sector as well as in the tax system. However, in the event that the government fails to convince the IMF staff that it will be able to deliver on the agreed conditions, reliance on other identified sources of external assistance would remain. A meeting between the Fund staff and the government is scheduled sometime this month.
One item noted in the budget documents under the subtitle external grant is privatisation proceeds from where the government expects around 70.4 billion rupees or 823 million dollars. It is relevant to note that the PPP governments, past as well as present, have not been sold on the idea of privatisation as it necessitates downsizing with a majority of state-owned entities (SOEs)/autonomous organisations known to be overstaffed - one of the major reasons for their massive annual losses. Critics of the PPP have accused the party of using these entities as recruitment centres for their loyalists which, they claim with a degree of veracity, has led to the massive bailout annual packages funded by the taxpayers.
In fiscal year 2010-11, the government realistically placed total proceeds from privatisation at zero, one of the few figures realised in the revised estimates. Given the fact that the country continues to struggle with major energy deficiencies, a major input for industrial output, with gas loadshedding up to three days a week in Punjab, and with serious security concerns continuing coupled with the continuing world-wide recession, it is unlikely that there will be many takers for privatisation in Pakistan. The government would also be well-advised to avoid the charge of selling the family silver cheaply or else fight the case in the courts as has happened in attempts to privatise SOEs in the past.
The government also expects around 34 billion rupees (399 million dollars) under the Kerry-Lugar bill in 2011-12. It is unclear why the budget notes this amount instead of the 1.5 billion dollars annually that was approved under the Kerry-Lugar bill. Perhaps this is a reflection of the 11 billion rupees released last year (129 million dollars) instead of the budgetary target of 52 billion rupees (600 million dollars). If this discrepancy is attributable to statements by some congressmen post-Osama bin Laden killing to slash assistance to Pakistan until and unless we support the US in achieving its objectives in the war on terror then, too, the smaller amount noted in the budget needs to be explained.
The government also expects to get 14 billion rupees under the Tokyo pledges which again requires an explanation given that the revised estimates for 2010-11 reveal 10 billion rupees were disbursed to Pakistan as opposed to our budget 2010-11's target of 55 billion rupees.
Programme loans too have been evaluated as generating 118 billion rupees in 2011-12 as opposed to the revised estimates of 2010-11 of only 39 billion rupees - about half of what was budgeted for the year at 80 billion rupees. It is evident therefore that the budgetary estimates for external assistance are grossly unrealistic. The government is relying on the IMF to bail it out, as reflected in statements by Ministry of Finance officials. In other words, until and unless the government can successfully persuade the Fund staff to release the stalled tranches it is a foregone conclusion that the Public Sector Development Programme would be further slashed and domestic borrowing would rise, thereby fuelling inflation further.
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