Pakistan has decided to secure two foreign loans worth $1 billion to enhance tax machinery efficiency, ensure expenditure accountability, and strengthen compliance with the state-owned enterprises (SOE) law — goals that critics say demand governance reforms rather than fresh borrowing.

To improve its efficiency in tax machinery, accountability in spending, and enforce the law of the state-owned enterprises (SOE) are the objectives that Pakistan has chosen to achieve by borrowing two foreign loans to the tune of 1 billion dollars to finance them, which in the opinion of critics should have resulted into governance reforms instead of the additional borrowing.

The government intends to get a $600 million loan under the Pakistan Public Resources for Inclusive Development programme with the World Bank and a 400 million loan with the Asian Development Bank (ADB) under the Accelerating State-Owned Enterprise Transformation Programme as stated in the official documents.

The 1 billion package at the prevailing exchange rate is roughly equal to Rs281 billion, which is, at 1 rate to finance an airport or 100 schools. The two loans will be obtained as a budget support to strengthen the foreign exchange reserves and no new asset will be created under the plan.

The progress is in line with a proposal by Syed Naveed Qamar, Chairman of the National Assembly Standing Committee on Finance who this week suggested that foreign loan agreements be ratified in parliament to guarantee transparency and more appropriate utilization of foreign financing.

They reported that the Ministry of Finance had suggested it purchase the loans as budget assistance because of the low inflows of foreign lenders. In the current fiscal year, the State Bank was forced to buy $8.4 billion on the local market as the International Monetary Fund (IMF) had not unlocked major funding yet.

Budget support loans are issued when preceding policy activities are over and not based on assets projects.

According to the officials, the World Bank programme of 600 million dollars is to reform such major departments as the Finance Division, Federal Board of Revenue (FBR), Pakistan Bureau of Statistics (PBS), the Ministry of Commerce, Power Division, Ministry of Information Technology, Pakistan Procurement Regulatory Authority (PPRA) and the Accountant General Pakistan Revenue (AGPR).

Out of the total, the amount will be disbursed on achievement of certain performances criteria including increase in income tax portion of total revenue to 55 percent within five years compared to less than 50 percent at present. These targets are, however, usually established in a flexible way in order to facilitate a free flow of loans.

Documentary evidence by governments claims that the problem of human development in Pakistan e.g. high levels of stunting, learning poverty and infant mortality are as a result of chronic underinvestment and poor spending in a deficit based fiscal system.

The above objective of the programme is to establish a stronger fiscal system to provide macroeconomic stability and better provision of public service, by increasing efficiency in tax collection and expenditure management, and better data systems to plan the policies.

Express Tribune recently indicated a 30billion gap in the data on imports made by different government agencies within the past five years.

PBS will get technical assistance, system upgrades, and capacity building under the World Bank plan to enhance the quality and timeliness of the economic data.

It will also spend money on enhancing the Tax Policy Unit, Debt Management Office and Open Budgeting initiatives. However, already, the World Bank and ADB have funded these areas and this highlights the importance of governance reforms rather than fresh funds.

Reports indicated that the FBR had earlier requested funds in the World Bank to purchase arms to use in the Customs Enforcement to no avail. The agency can once more suggest the inclusion of equipments and weapons to the civil armed forces within the new facility.

The Planning Commission has however objected to the proposal to spend the 600 million dollars and has mentioned the overlaps with the current programmes of the 450 million dollar Pakistan Raise Revenue Project by the FBR and the online billing program by the AGPR; SEHAL.

Individually, Pakistan is applying to the ADB to provide it with $400 million as part of its SOE Transformation Programme to enhance corporate governance and commercial viability of 40 state enterprises.

The ADB loan aims at promoting compliance with the SOE Act, institutional oversight, and financial performance especially in the National Highway Authority (NHA)

Although finance to fund such reforms has been done before by the ADB, officials note that the issue of governance gaps exists because of poor institutional capacity in Central Monitoring Unit and line ministries.

The representatives of UNDP and IMF emphasized that better governance is needed to provide better services in a recent seminar at the Sustainable Development Policy Institute (SDPI).

Publication of the Governance and Corruption Diagnostic Assessment report has also been made a precondition to the next $1 billion tranche to be released by the IMF as a part of the Extended Fund Facility.