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

Introduction

In Shakespeare's Hamlet, Polonius advises his son: "Neither a borrower nor a lender be; for loan oft loses both itself and friend." Pakistan has ignored this advice for most of its history, but never more so than in the decade from 2012 to 2022. During these years the country borrowed record amounts from the IMF, China, Gulf states, multilateral banks and international bond markets, while grants and traditional aid shrank. These inflows financed power plants and roads and rescued the economy from repeated crises, yet growth remained short-lived and the burden of repayment grew heavier every year.

Overview

Pakistan's total external debt and liabilities rose from about $61 billion in June 2013 to about $127 billion in June 2022, roughly doubling in nine years. Total public debt rose from about Rs 14 trillion to about Rs 49 trillion over the same period, driven also by currency depreciation. Pakistan entered two IMF programmes in the decade (2013 and 2019), received large Chinese financing under CPEC, borrowed through Eurobonds and sukuk, and obtained deposits and deferred oil payments from Saudi Arabia, the UAE and China. Growth averaged around 4 percent a year, with brief peaks above 5 percent that ended in balance-of-payments crises.

Volume of grants, aid and loans in the last ten years

1. Total external debt.

External debt and liabilities roughly doubled from about $61 billion (2013) to about $127 billion (2022), with annual external debt servicing rising to well over $10 billion. (Reference: State Bank of Pakistan, Pakistan's Total External Debt and Liabilities, statistical series; Ministry of Finance, Debt Policy Statement 2022-23.)

2. Public debt.

Total public debt, domestic and external, rose from about Rs 14.3 trillion in June 2013 to about Rs 49 trillion in June 2022, rising to nearly three-quarters of GDP. (Reference: Ministry of Finance, Debt Policy Statement 2022-23; Finance Division, Pakistan Economic Survey 2021-22, chapter on public debt.)

3. IMF programmes.

Pakistan took a $6.6 billion Extended Fund Facility in 2013, completed in 2016, and a $6 billion EFF in 2019, later raised to about $7 billion, plus a $1.4 billion Rapid Financing Instrument for COVID-19 in April 2020. (Reference: International Monetary Fund, Pakistan: history of lending commitments; IMF press releases, September 2013, July 2019 and April 2020.)

4. Multilateral lending.

The World Bank and Asian Development Bank together provided billions of dollars each year for budget support, energy, social protection and flood recovery, becoming among Pakistan's largest creditors. (Reference: World Bank, Pakistan country portfolio; Asian Development Bank, Pakistan: Fact Sheet 2022.)

5. Chinese loans and CPEC.

China financed CPEC energy and infrastructure projects through government and commercial loans and independent power producers, and provided SAFE deposits and commercial loans for balance-of-payments support, making it Pakistan's largest bilateral creditor by 2022. (Reference: CPEC Authority, project data; IMF, Pakistan staff reports, 2022, on external financing; AidData, Banking on the Belt and Road, 2021.)

6. Gulf deposits and oil facilities.

In October 2018 Saudi Arabia agreed to a $3 billion deposit and $3.2 billion of deferred oil payments, renewed in 2021; the UAE deposited $2 billion in 2019. Such support kept reserves afloat during crises. (Reference: Ministry of Finance and Saudi Fund for Development announcements, October 2018 and October 2021; State Bank of Pakistan, Annual Report 2018-19.)

7. Eurobonds and sukuk.

Pakistan returned to international markets with a $2 billion Eurobond in 2014, followed by issues in 2017 and a $2.5 billion Eurobond in April 2021, adding commercial debt at relatively high interest rates. (Reference: Ministry of Finance press releases, September 2014, December 2017 and April 2021.)

8. Grants, US aid and debt relief.

Grants formed a small share of inflows. US assistance under the Kerry-Lugar-Berman Act (2009) wound down, and Coalition Support Fund reimbursements were suspended in 2018. Under the G20 Debt Service Suspension Initiative, Pakistan obtained temporary relief of more than $3 billion in 2020-21. (Reference: Enhanced Partnership with Pakistan Act 2009; US Department of Defense announcements, January 2018; Ministry of Economic Affairs, DSSI agreements, 2020-21.)

Did aid and loans stimulate growth?

1. Short-term stabilisation.

The 2013 IMF programme rebuilt reserves and was followed by growth rising to about 5-6 percent by FY2018, showing that external finance can create space for growth. (Reference: IMF, ex-post evaluation of Pakistan's 2013 Extended Arrangement; Finance Division, Pakistan Economic Survey 2017-18.)

2. Infrastructure and energy through CPEC.

CPEC financing added thousands of megawatts of generation capacity and ended the severe load-shedding of the early 2010s, while new motorways improved connectivity. (Reference: CPEC Authority, energy projects data; National Electric Power Regulatory Authority, State of Industry Report 2019.)

3. COVID-19 relief.

Emergency financing from the IMF, World Bank, ADB and DSSI relief in 2020 funded the Ehsaas Emergency Cash programme for about 15 million families and helped the economy recover in FY2021. (Reference: Ehsaas Programme, Emergency Cash reports, 2020; IMF press release on the RFI, April 2020.)

4. Reform conditionality.

Loans from the IMF and multilateral banks pushed reforms such as the State Bank of Pakistan (Amendment) Act 2022 on central bank autonomy, tax measures and power-sector reform, though implementation was uneven. (Reference: State Bank of Pakistan (Amendment) Act 2022; IMF, Pakistan staff reports.)

5. A consumption-led boom-and-bust.

Much borrowing financed imports and consumption rather than exports, so each growth spurt widened the current account deficit, which reached about $19 billion in FY2018 and about $17 billion in FY2022, leading to new crises. (Reference: State Bank of Pakistan, balance of payments data, FY2018 and FY2022.)

6. Crowding out by debt servicing.

Interest payments became the largest item of federal expenditure, leaving less for development spending, education and health. (Reference: Ministry of Finance, Annual Budget Statement 2022-23; Finance Division, Pakistan Economic Survey 2021-22, chapter on fiscal development.)

7. Weak exports and investment.

Goods exports moved between about $21 billion and $32 billion during the decade and investment stayed around 15 percent of GDP, too low to sustain growth or repay loans. (Reference: Pakistan Bureau of Statistics, trade data; Finance Division, Pakistan Economic Survey 2021-22, chapter on growth and investment.)

8. Dependence and loss of policy space.

Reliance on lenders made Pakistan vulnerable to their conditions and geopolitical pressures, and repeated rollovers turned temporary support into long-term dependence. (Reference: Ishrat Husain, Governing the Ungovernable, Oxford University Press, 2018; IMF, Pakistan staff reports on external financing gaps.)

Conclusion

Allama Iqbal wrote in Bal-e-Jibril: "Ae tair-e-lahooti us rizq se maut achhi, jis rizq se aati ho parwaz mein kotahi" (O bird of the heavens, death is better than sustenance that clips your flight). In the last ten years Pakistan received large volumes of loans and deposits but relatively few grants. This financing built power plants, roads and safety nets and prevented default, but it did not produce sustained growth because it fed consumption rather than exports and investment. To escape the cycle of borrowing, Pakistan must raise taxes, savings and exports so that external finance supports growth instead of replacing it.