PAKISTAN: Donors expected to exceed $2.3 billion in aid

12 May 1995

Official aid commitments to Pakistan are likely to exceed the government's request of $2,300 million for fiscal 1995/96, the World Bank says. An official donors' meeting was held in Paris on 20-21 April. The government delegation to the meeting was headed by VA Jafarey, special adviser to Prime Minister Benazir Bhutto.

The higher level of commitments reflects the need to finance a number of projects such as the Ghazi Barotha hydroelectric project, the World Bank says. However, donors did not indicate the amount of money they expect to make available for this project, which is designed to add 1,450 MW to generating capacity.

Donors raised a number of issues at the meeting including:

A cut in defence spending. Jafarey stated that defence spending was linked to relations with India. Bhutto has asked the US to mediate.

An improvement in fiscal planning. Donors urged the government to divert the proceeds of privatisation to reduce its debt, which was 47.1 per cent of gross domestic product (GDP) in 1994.

Reforms for the agricultural sector. Jafarey said the sector was badly affected by a cotton virus, bad weather and violence in Karachi. He said the 1995 macroeconomic programme needed to be modified.

However, the government has reached agreement with the IMF on a revised stabilisation programme focusing on reducing the fiscal deficit to 4 per cent of GDP in 1995/96. In addition to the programme, the government intends to broaden the tax base to reduce the fiscal deficit, and to continue to constrain spending. High priority investments, such as the social action programme, would be maintained, Jafarey said. A revised $1,000 million structural adjustment facility is expected to go before the IMF board in late May.

For the first time, the donors meeting was followed by a meeting between the government delegation and private investors. Investors said the overall climate for foreign investment had substantially improved and expected that private flows could play a significantly greater role in financing development efforts.

They welcomed the government's strong commitment to private sector development, but said this was not yet reflected in the day-to-day interactions of business people and the middle and lower levels of bureaucracy.

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