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UNCLAS SECTION 01 OF 02 ISLAMABAD 000343 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EAID EFIN ECON IBRD PGOV PREL PK
SUBJECT:  MORE DONOR ASSISTANCE NEEDED 
 
REF: ISLAMABAD 305 
 
ISLAMABAD 00000343  001.2 OF 002 
 
 
¶1. (SBU) This is an action cable.  See paragraph 8. 
 
¶2. (SBU)  Summary: GOP officials have told us and high-level 
visitors that they have received little support from the 
international donor community in recent months.  A World Bank senior 
economist confirmed that very little foreign assistance had reached 
Pakistan lately, partly because donors were waiting for the GOP to 
finalize its agreement with the International Monetary Fund, and 
also because donors were waiting for the fiscal situation to 
stabilize.  Top GOP officials have remarked that Pakistan was 
treated unfairly by the IMF when it received only five times its 
quota under its $7.6 billion Standby Arrangement, and Finance 
Advisor Shaukat Tarin has publicly announced his intention to ask 
the IMF for an additional $4.5 billion.  We request that Washington 
urge the World Bank and the Asian Development Bank to disburse more 
quickly, and that a Donors' Conference be finalized as quickly as 
possible to stimulate a faltering economy, that can not spend its 
way out of the problem.  End Summary 
 
¶3.  (SBU)  Dr. Hanid Mukhtar, Senior Economist at the World Bank, 
confirmed that outside financial assistance has been slow over the 
past year, due both to weak fundamentals and partly to the 
International Financial Institutions standing aside while the GOP 
finalized its agreement with the IMF.  In the past, over half of 
World Bank assistance had been in the form of budgetary support, but 
this had changed since FY06-07.  The World Bank had planned to 
disburse $600 million in FY 2007-08, but due to worsening 
macroeconomic fundamentals, this money did not materialize.  The GOP 
then asked them for a stabilization loan, but at the last minute the 
Bank was advised not to do so because the IMF program was being 
negotiated. 
 
¶4.  (SBU)  The Bank is planning to disburse $500 million in new 
money for budgetary support in March, however, once the IMF review 
is complete.  Mukhtar said that the World Bank has a $2 billion 
pipeline which, in theory, could be disbursed by end-June; it 
includes $300 million for the Benazir Income Support Program, 
$90-$100 million for power sector development, and $500 million 
(over several years) for the National Trade Corridor.  He predicted 
that a realistic estimate of the amount that the GOP would receive 
by the end of the fiscal year would be $700 million - the $500 
million in budgetary support plus $100 million each for education 
projects in the Sindh and Punjab, which are contingent on policy 
framework changes by these states. 
 
¶5.  (SBU)   He noted that the bulk of Pakistan's foreign assistance 
comes from multilateral sources, and acknowledged that the Asian 
Development Bank had been slow in disbursing its funds as well.  In 
bilateral terms, Saudia Arabia has not provided deferred oil 
payments (which it had done in the past) for over one year, the UAE 
has not come through with oil assistance, and China's $500 million 
was a deposit in the central bank, on which interest must be paid. 
Many donors have expressed reluctance to give straight budgetary 
support, preferring to spend money on projects over which they have 
more control.  Zardari has told us, however, that the United Arab 
Emirates has promised him significant financial assistance, although 
this has yet to materialize. 
 
¶6.  (SBU)  As the IMF conditions have begun to pinch the economy, 
GOP officials have become more vocal about their need for additional 
funds.  State Bank Governor Raza told DCM February 2 (reftel) that 
the Fund's Standby Arrangement was unfair, as Pakistan received only 
five times its quota, while a country such as Hungary had received 
twelve times its quota from the Fund, and that Pakistan intended to 
ask the Fund for more money once a successful review was concluded. 
Finance Advisor Shaukat Tarin told the press that he intended to 
request an additional $4.5 billion from the Fund. 
 
¶7.  (SBU) Comment:  Given that Pakistan's foreign exchange reserves 
have stabilized, the GOP has to make the case that the volume of 
drawings from the IMF is insufficient.  However, the GOP and the IMF 
 
ISLAMABAD 00000343  002.2 OF 002 
 
 
agree that expanded development assistance is needed in the short 
term to mitigate the impacts of balance of payments adjustment.  The 
IMF resident representative (protect) said as donors' conference 
sooner rather than later was important, and, while all assistance 
was welcome, budgetary support was particularly crucial.  End 
Comment 
 
¶8.  (SBU)  Action Request:  Especially now that it appears that the 
GOP will meet many of the Fund's targets for release of the second 
tranche of the Standby Arrangement (reduction of the fiscal deficit, 
higher interest rates, increased tax collections), we request that 
SCA approach Treasury to encourage the quick disbursal of World Bank 
and Asian Development Bank commitments.  We also ask that the 
Department approach the United Arab Emirates to encourage them to 
release their promised assistance as quickly as possible.  Early 
action on appropriations for the USG contribution to the donors' 
conference is also needed. 
 
 
PATTERSON