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Foreign loans: Boon or bane?

Foreign loans: Boon or bane?

According to newspaper reports, the Asian Development Bank (ADB) will launch a three-year country operations business plan amounting to $2.9 billion in January 2015. The money will be granted in loans comprising $1.9billion in ordinary capital resources and $998millionfrom the Asian Development Fund.At least 34 percent resources will be provided through multi-tranche financing facility.The business plan is part of the interim country partnership strategy (2014-15) while another four year 2015-19 strategy will come under consideration in the first quarter of 2015. At least $18.75millionwill be provided under non-lending technical assistance program for 2015-17 whereas the final commitment of resources is attached with the performance of the country. The new multi-tranche financing facilityhas been devised to tap renewable energy potentials in the country and develop medium-sized hydropower projects to address water and energy shortage as well as to improve infrastructure.

Apart from Pak-China economic corridor, the multi-tranche financing facility envisages Central Asia Regional Economic Corridors. Pakistan has faced one of the worst flood devastations of its kind in 2010 and a follow-up program will be launched to resume the reconstruction work coupled with steps to meet any future challenges to the country’s infrastructure. For the purpose, a Pakistan Infrastructure Finance Corporation will be established to cover the financial aspects of the program.Earlier, the bank approved a $42.9 million loan to improve agriculture sector in the Federal Administrative Tribal Area. The government has signed another $248 million loan agreement with ADP to develop power transmission operations and management in the country.The project include 500-kilovolt transmission lines from Muzaffargarh grid station, four new 220-KV grid stations and an extension of 500-KV grid stations at Jamshoro and Gujranwala. The final tranche of the $800 million was originally approved in December 2006.

The history of the country reveals that a strategy has been adopted by every successive government to seek foreign loans to develop infrastructure in the country. The total foreign economic assistance so far is estimated at $7.4 billion this year, showing a bitter fact that the country has become heavily dependent on foreign loans.Thousands of Pakistani economists are contributing to foreign economies with their talent, skill and knowledge, but the financial managers in the country have so far failed to bring any viable solution to economic as well as energy crisis. Obtaining foreign loans is a boon if judicious utilization is ensured and bane when loan money is syphoned off illegally to foreign banks.

The sum of $2.9 billion, which has been allocated for business plan, can be a leap forward to resolve the pressing issues of the country such as energy and infrastructure. However, what the government has to do is to ensure the fair use of foreign grants.