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Saturday, July 3, 2010

There is no free lunch...not even the luxury of breaking promises. Please read and comment.

Commitments made by the donors (read: creditors) to extend credit have costs too, called commitment charge. If you promise to get loan, you have to pay commitment charges till such time the loan is disbursed to you and you start paying interests in lieu of commitment charge. If you pay commitment charges but do not honor the commitments of the other kind made to the donors, like selling the family silver, like sucking the blood of poor masses etc, that has a cost too. And that is a very dear cost.
It means there is no free lunch, not even the luxury of breaking the promises. However, if you look at it from your own perspective; i.e. if you are not a government, that is not a cost, that is a saving. It has been learned that Pakistan had to escape the loan liability of over $2 billion due to un-kept promises and its cash inflow was reduced by this amount.
The critics of the government view it as poor planning of economic managers, because the gap caused by less cash-flows had to be filled by borrowing from the central bank which resulted in inflation. Express Tribune has reported that Asian Development Bank (ADB) and World Bank (WB) have both refused to release loans worth $655 million each, as the government has not met conditions that were agreed upon with the donor agencies. “The government was not realistic at the time of making promises with the agencies which has resulted in less-than-expected inflows,” news source said. The World Bank had asked Pakistan to reform its tax system and power sector.
While the official claimed that Washington-based WB fell short of its commitment by 45 per cent, the donor agency’s spokesperson said that the $780 million disbursed in 2009-10 was approximately 90 per cent of the targeted disbursements for the last financial year. The official also said that a $300 million loan for the Poverty Reduction Support Credit program could not be finalized during the last fiscal year.
Meanwhile, World Bank has approved a $146 million soft loan for the second phase of the Pakistan Barrages Improvement Project to rehabilitate and modernize the Jinnah Barrage. The repayment period for the loan is 40 years on less than one per cent interest rate. World Bank Acting Country Director for Pakistan, John Wall said “Improvements in basic infrastructure including water supplies are critical to improving human development outcomes.”
The Punjab Barrages Improvement Phase II Project aims to strengthen and modernize Jinnah Barrage and to enable reliable and uninterrupted supply of water for over 2.1 million acres of farmland. It will provide 600,000 families with irrigation and water for domestic use.
Jinnah Barrage is one of the highest priority barrages in the Indus system as it provides a bridge over the Indus River to link roads between Khyber Pakthunkhwa and Punjab. The World Bank supports more than 48 operations in irrigation, drainage, water resources development and power sectors in Pakistan. The agriculture system is wholly dependent on irrigation.

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