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Pakistan Affairs · CSS 2022 · Question 6

What is the volume of grants, aid and loans in Pakistan's economy in the last ten years to stimulate the growth? Discuss.

By CSP Qasim Farooq

Understanding the topic

The relevant period is the decade before the 2022 paper, roughly FY2013 to FY2022. The answer should state the scale carefully, distinguish annual inflows from total debt, and then ask whether the money created lasting growth.

Outline

  1. Introduction: large inflows but limited structural change
  2. How grants, loans and debt are measured
  3. Scale and composition during FY2013-FY2022
  4. Contribution to infrastructure and stability
  5. Why the growth impact remained weak
  6. How to use external finance better
  7. Conclusion

Introduction

Pakistan received a large amount of external finance during the decade ending in FY2022. The exact total changes with the definition used. Some official series include commercial loans, bonds, guarantees or central-bank deposits, while others count only government project and programme assistance.

The broad trend is still clear. Annual public external disbursements rose from the mid-single-digit billions of US dollars in the earlier years to about US$15.4 billion in FY2022 under the State Bank's loans-and-grants series. The Economic Affairs Division reported a wider FY2022 total of about US$17 billion. Almost all of it was repayable finance, not grants. These inflows funded power, roads, social programmes and emergency support, but they did not create enough exports or tax revenue to make borrowing self-sustaining.

How the figures should be read

Grants

Grants do not have to be repaid. They usually fund humanitarian work, technical assistance or specific development projects. Their share was small compared with loans.

Concessional loans

Multilateral and bilateral lenders offer longer repayment periods and lower rates than commercial markets. These loans can support productive projects if selection and implementation are sound.

Programme support

Programme loans support the budget or foreign-exchange reserves and usually carry reform conditions. They can prevent a crisis, but they do not automatically raise production.

Commercial finance and deposits

Commercial-bank loans, Eurobonds, Sukuk and deposits from friendly countries provide quick liquidity. They usually carry higher costs or shorter maturities and therefore create greater refinancing risk.

Flow is not stock

Annual disbursement is money received during a year. External debt is the amount still owed. Adding the two, or treating announced commitments as received funds, gives a misleading total.

Scale and composition, FY2013-FY2022

Official State Bank and Economic Affairs Division data show that gross public external inflows generally increased over the decade, although the amount changed sharply from year to year. They were about US$6.9 billion in FY2016, roughly US$10 billion in FY2017 and around US$13 billion in FY2021 under the State Bank's comparable series.

In FY2022, the State Bank recorded about US$15.4 billion in gross public grants and loans, excluding guarantees. The Economic Affairs Division's broader report recorded about US$16.97 billion. Around US$16.73 billion of the EAD total consisted of loans and about US$0.24 billion of grants.

The decade-wide total therefore runs into many tens of billions of dollars and approaches US$100 billion under wider gross-disbursement coverage. It should not be read as free money or a net gain, because principal and interest were also repaid during the same period.

What the inflows achieved

Energy and transport

External finance supported power generation and transmission, roads, irrigation and urban services. CPEC projects helped ease some electricity and connectivity constraints.

Social protection and human development

The World Bank, Asian Development Bank and bilateral partners funded education, health, disaster recovery and programmes such as social protection. These projects can produce long-term benefits even when they do not earn revenue directly.

Budget and reserve support

IMF resources, programme loans and friendly-country deposits helped meet external payments and avoid sudden import compression. During the COVID-19 crisis, outside support also created room for health and relief spending.

Technical knowledge

Development projects brought expertise in procurement, data and public administration. The benefit was greatest where local institutions continued the reform after the funding ended.

Why the growth impact remained weak

Borrowing often bought time

A growing share of finance covered budget or balance-of-payments gaps. It postponed adjustment but did not always expand the country's capacity to produce and export.

Projects did not consistently earn foreign exchange

Loans must be repaid in foreign currency. When a project neither increases exports nor reduces imports, repayment places pressure on reserves and encourages further borrowing.

Weak selection and implementation

Delays, cost overruns, poor maintenance and political project choices lowered the return on borrowed money. Announced commitments sometimes remained undisbursed because projects were not ready.

Reforms did not last

Successive governments accepted tax, energy and state-enterprise reforms to secure funding but often reversed them later. Repeated IMF programmes reflected unresolved structural problems.

Public debate confused aid with loans

Calling all external inflows "aid" hid the fact that grants were very small. This made it easier to understate repayment and rollover risks.

A better use of external finance

Pakistan should prefer long-term concessional borrowing and limit expensive short-term finance. Projects should be chosen for their ability to raise exports, save energy imports, improve human capital or produce a clear social return.

Parliament and the public need accessible information on loan terms, currency risk, guarantees and project performance. Most importantly, external finance must support rather than replace domestic taxation, export reform and efficient public enterprises.

Conclusion

Pakistan received large and rising external inflows during FY2013-FY2022, reaching about US$15.4 billion in FY2022 under the State Bank's comparable measure and almost US$17 billion under the broader EAD measure. Loans overwhelmingly dominated grants. The money funded useful infrastructure, services and crisis support, but it did not remove the weaknesses that repeatedly create financing gaps. External borrowing supports lasting growth only when it raises productivity and earns the foreign exchange needed for repayment. Otherwise, today's inflow becomes tomorrow's rollover problem.

References

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