OPTIONS FOR POST FY 87 PAKISTAN ASSISTANCE

The purpose of this paper is to provi~e a framework for developingInter-Agency guidance to USAID/lslamabad for the design of economicand food assistance to Pakistan in the post-FY 1987 period.

The paper consists of the following sections:

I. Background

II. Current Program StatusA. Program Focus and CompositionB. project ImJlementationC. Contract ManagementD. Pipeline ReductionE. Donor Coordination

III. TheA.

B.

c.

Post-FY 87 Program:A new multi-year commitment versus a return to annualfunding levelsOverall funding levels for both economic and foodassistanceThe mix of ESF, DA, and P.L.-480 resources

D. The mix of loan and grant fundingE. Major sector concentrationsF. The mix of quick-disbursing (i.e. commodity

assistance) and longer-term (i.e. techilicalassistance) aid.

G. Co-financing with the World Bank and other donors.

I. BACKGROUND

In the aftermath of the Iranian revolution and the Sovietinvasion of Afghanistan, the u.S. decided to rasume bilateralassistance to Pakistan. Under Secretary of State Buckley ledthe initial negotiating team which defined the broad parametersof a bilateral relationship to be supported by both military andeconomic cooperation. On the military side, the assistance wasto span five years, with a total value of $1.575 billion(largely in FMS credits on near commercial terms). The economicassistance package, negotiated by AID Administrator McPherson,was to total $1.625 billion over the six year period,FY 1982-1987. It was understood that economic assi3tance wouldcushion the short-term balance-of-payments impact of militarypurchases, but that Economic Support Funds and P.L.-480 Title Iresources would be programmed to affect long-term development in

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agriculture, energy and the social sectors. Two-thirds of ourESF contribution would be in the form of grants, the other thirdin concessional loans.

II. CURRENT PROGRAM STATUS

. As we begin the fourth year of the six year program, A.I.D. hasobligated funds as scheduled and designed twenty-three projects(see table attached), which are in early stages ofimplementation. We are an active party to a rigorous butcollegial policy dialogue aimed at assisting Pakistan to moveaway from :he over-regulation of the economy that characterizedmuch of the 1970's. The AID/GOP relationship is positive andproductive, although the GOP complains that Pakistan's tradedeficit with the U.S., our trade policies and Pakistan's debtburden more than offset U.S. concessional assistance.

At least five management concerns affect the current program:

A. Program Focus and CompositionB. project ImplementationC. Contract ManagementD. Pipeline ReductionE. Donor Coordination

A. FOCUS AND COMPOSITION OF CURRENT PROGRAM

1. The Pakistan program is heavily concentrated inagriculture, irrigation aad energy. About ten percentof project assistance is for the social sectors. Thep-ducation sector assessment scheduled for early CY 1985could lead to changes in this percentage.

2. The composition of the currently authorized program (byMission estimate) is as follows:

Technical AssistanceTrainingCommoditiesContingencyOther Costs (local expenditures)

11.85 percent4.52 percent

62.83 percent3.39 percent

17.41 percent

3. Although technical assistance is a small percentage ofour total effort, it provides a bone of contention withthe GOP (which would prefer fewer consultants) andpresents a management headache for the Mission whichmust orient and supervise over one hundred long-termresident advisors.

FY 1982 to FY 1987(Millions of U.S. $)

0469047004'7104720473

Number 391- TITLE0296 Agricultural Research0413 On-Farm Water Mgt0467 Irrigation Systems ~~gt

046e AgriculturalCommodities andEquipment*Pop Welfare PlanningProject Design FundTribal Areas DevMalaria Control IIRuralElectrification

0474 Dev Support Training0475 Primary Health Care0178 Energy PIng & Devel0479 Balu~histan Area Dev0180 Rural Roads0481 Forestry PIng & Dev0482 Private Sector Mobiliz0484 Social Marketing of

Contraceptives0485 NWFP Area Development0486 Energy Commodities &

Equipment

0487 Lakhra Coal PowerGeneration

-)488 TIPAN.'489 MART

l_ <191 Food Secur i ty MgmtTOTAL AMOUNT PROGRAMMED

PROJECT RESERVE

TOTAL ESF**

PL 480 Title I

GILGGGTOTLGGGGGTOTLGGGGGGGGG ~

GTOTLGTOTLGGGGTOTLGTOTLG

TOTLGL

FY823.27..0

NA60.034.026.0

4.37.53.01.58.0

NA8.0

NA5.5

NANANANANANA

NANANANANANANANANANA

100.034.066.0

.0

.0

.0

100.034.066.050.0

FY83NA

3.030.560.040.020.04.82.55.0

17.750.027.023.04.0

.013.0NANA

7.0NANA

2.5NANANANANANANANANA

200.067.0

133.0.0.0.0

200.067.0

133.050.0

FY84NANA

19.470.030.040.014.8

.05.06.7

31.025.06.06.08.05.05.1·NA3.0NA5.5

9.522.020.02.0NANANA4.05.05.0

225.075.0

150.0.0.0.0

225.07~.0

150.050.0

FY85NANA

18.070.053.017.011.7

5.0.0

9.6.0.0.0.0.0.0

6.020.0

.025.08.5

7.248.030.018.0

.0

.0

.011.05.05.0

250.083.0

167.0.0.0.0

250.083.0

167.050.0

FY86NANA.0

40.040.0

.0

.0

.05.08.7

22.0.0

22.05.06.55.05.0

.08.0

25.02.0

5.830.030.0

.077.042.035.010.010.010.0

275.092.0

183.0.0.0.0

275.092.0

183.050.0

FY87NANA

22.1.0.0.0

10.0.0

6.0NA

57.052.05.0

10.0NA7.0

23.920.07.0

.04.0

5.0.0

NANA

48.040.08.0

10.510.015.0

255.592.0

163.519.5

.019.5

275.092.0

183.050.0

TOTAl3. ;

10. (90. (

300. (197. (103. (

45. f15. (24. (44. ~

168.(104.(

64.(25.(20. (30.C40.C40.C25.C50.020.0

30.0100.0

80.020.0

125.082.043.035.530.035.0

1305.5443.0862.519.5

.019.5

1325.0443.0882.0300.0

GRAND TOTAL 150.0 250.0 275.0 300.0 325.0 325.0 1625.0

*Development Assistance funding proposed for Agricultural Commodities andEquipment (0468) as follows:

FY 85 TOTLG

50.043.07.0

FY 86 TOTLG

50.050.00.0

*"If DA funds utilized the ESF total would be reduced to 200.00 in FY 85 and225.0 in FY 86.

ASIA/PNS:l1/05/84

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4. Although commodity assistance (the bulk of our program)is meant to be fast disbursing, in reality it is slowedby conditionality, AID and GOP procedures and in someareas (e.g. private sector, health and family planning)by lack of full GOP commitment to basic conceptsunderpinning our assistance.

B. IMPLEMENTATION OF CURRENT PROJECTS

1. In its latest project implemention reports, the Missionidentified significant problems with respect to the-­following projects:

Energy Commodities and Equipment (GOP resistance toprivate sector participation).Agricultural Commodities and Equipment (GOPresistance to private sector participation).Forestry Planning and Development (GOP delay inapproving PC-l documen').On Farm Water Management (lack of GOP coordination).Rural Electrification (GOP management vacancy, TA,site and supply problems).primary Health Care (lack of strong GOP commitment) .population Welfare Planning (delays in most projectelements).Social Marketing of Contraceptives (Ministry ofFinance problems with the basic concept).Malaria II (GOP delay in approving PC-I, TAproblems).

2. Several other 'proiects are too recent to permit anevaluation of progress, but more than one-third of currentprojects have significant problems.

C. CONTRACT MANAGEMENT

1. The problem potential is compounded by the number andlocation of long term resident contractors as well as bythe complexity of their technical assignments.

2. Over one hundred long term contractors (and theirdependents) will be in place by the end of FY 1985seventy contractors outside Islamabad, some in rePlote andsensitive areas.

3. Sixty contractors are to be employed by three (of theMission's twenty-three) projects:

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Rural Electrif~cation (LOP: $500 million of whichA1D contribution is $170 million);Irrigation systems Management (LOP: $230 million ofwhich AID contribution is $90 million); andManagement of Agricultural Research and Technology(LOP: $40 million of which AID contribution is $30million)

4. Major problems with contractor performance have alreadysurfaced in the Rural Electrification (Gibbs and Hill),Malaria II (University of Maryland,) and IrrigationSystems Management (PRC/Checchi) projects.

5. The Lakhra Coal/Power project, if approved, will requirelarge additional amounts of long term technical assistancein the unstable province of Sind.

6. Commodity procurement adds to the USAID contractmanagement burden, with $300 million in AgriculturalCommodities and Equipment (ACE) and $100 million in EnergyCommodities and E~uipment (ECE) in addition to largeamounts within other projects. The use of procurementservice agents for ACE and ECE was subject to an auditwhich questioned the Mission's contract review andmonitoring capability. The Mission has since recruitedadditional contract staff.

D. PIPELINE REDUCTION

1. The Mission pipeline as of September 30, 1984 was $375million. The Mission projects a pipeline of $387 millionby September 30, 1985, assuming significant progress inimplementation of the Rural Electrification, EnergyPlanning, Tribal Areas Development and other projects.

2. The total foreign assistance pipeline from all donorcontributions amounts to about $5 billion, with aresulting opportunity cost to pakistan of at least $500million per year, by Mission estimate. The Missioncharacterizes the problem as one resulting from:

Four separate financial schedules with littleintegration:

a Five Year Planannual Federal Development Plans (ADP)

\

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annual provincial ADP'sforeign assistance financing agreements

\

Two separate project planning processes with lictleintegration:

the PC-l processthe donor project approval process

No tracking and monitoring system to keep foreignassistance flows moving

- 'No system to align domestic and external resourceplanning

A decision process which lacks discipline and finality

No accountability for the financial costs of delays inmoving foreign assistance resources

A project planning ·ethos· which is oriented towardscontrolling rather than enabling functions

project planning tools (pel's and PC-2's) which areembedded in a review process designed for managingdomestic resources, but with little flexibility toaccomodate external resources efficiently.

E. DONOR COORDINATION

1. Mission management and staff are heavily engaged indiscussions with other donors, not only with respect toprojects which we plan to or currently co-finance (Lakhra,Rural Electrification, Irrigation Systems Management,TIPAN, SDEP) but also with respect to the Joint Task Forceon Implementation which the World Bank at GOP request, andat AID'S suggestion, has agreed to chair. Progress by theTask Force has been slow.

2. The Mission GOP policy dialogue in energy and agricultureis dependent upon World Bank/GOP negotiations with respectto proposed Bank sector loans. The negotations foragriCUlture are just beginning. A Bank pre-appraisalMission for energy returned from Pakistan in December 1984to report that the GOP has agreed to important electricitytariff and other reforms but will continue to heavilysubsidize consumer gas prices.

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3. We have thus far declined to participate in two mammothcapital infrastructure projects put together by the WorldBank (the $8 billion Kalabagh Dam and the $2 billion LeftBank Outfall Drain). Our options are still open for thepost-FY 87 program.

4. We share the frustration of the World Bank, the AsiaDevelopment Bank, the UNFPA and other donors at havingbeen unable, after nearly 20 years of assistance in familyplanning, to help Pakistan increase contraceptiveprevalence beyond ten percent of married women ofreproductive age, much less reduce the annual crude birthrate below 40 births per thousand.

5. Improved donor coordination is required for furtherprogress in pipeline reduction as well as for GOP policychange in agriculture, irrigation, energy, population andother sectors. How to achieve such coordination withouteven greater involvement in co-financing is less clear.

III. THE POST-FY 87 PROGRAM: ISSUES AND OPTIONS

ISSUE A: LENGTH OF COMMITMENT

OPTION 1: A NEW MULTI YEAR COMMITMENT

PRO: would strengthen a pattern of continuity,signalling the strategic importance which the U.S.attaches to our relationship with Pakistan.

the geopolitical concerns which gave rise to theFY 82-87 program will retain their significance in1987 and beyond.

Pakistan is likely to continue to face Balance ofPayments shortfalls beyond 1987.

Pakistan's development needs in agriculture, energyand the social sectors are long term.

multi-year programming facilitates overall planningand allocation of resources.

CON: The original six year economic assistance packagewas directly linked to the five year militaryassistance program to help offset the financingcosts associated with $1.575 billion in ForeignMilitary Sales. We have as yet no firm indicationthat there will be a new multi-year package of U.S.military support.

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Pakistan's absorptive capacity for project aid islimited. The total donor pipeline at present isestimated at close to $5 billion, almost five timesannual commitments.

A multi-year commitment may weaken the leverageneeded for sustained policy dialogue.

OPTION 2: RETURN TO ANNUAL AGREEMENTS

PRO: Annual agreements are the normal mechanism throughwhich AID programs bi-lateral economic assistance.

With annual agreements, we retain greaterflexibility to slow the rate of obligations ifpipeline or other considerations so warrant.

Annual agreements provide renewable leverage forU.s. positions in the policy dialogue.

CON: A one-year time horizon is inadequate foraddressing U.S. strategic interests in Pakistan.

A return to annual agreement in Pakis~an wouldsignal to the GOP, accurately or not, a weakeningof U.s. support.

Mission staff constraints would be intensified by areturn to year-by-year programming.

ISSUE B: OVERALL FUNDING LEVELS FOR ECONOMIC AND FOODASSISTANCE

OPTION 1: ADOPTION OF APPROVED ASSISTANCE PLANNING LEVELS(AAPL) ISSUED BY AID/W (JUNE 1984)

PRO: Reflects AID/W projection of relative fundingavailability.

If pipeline increases, or remains at currentlevels, would permit systematic drawdown ofresources.

CON: As Ambassador Hinton pointed out in January 1984:

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• •••• A cut is suggested in nominal assistance inthe first year following the present program byalmost 25 percent. By the second year thereduction would come to almost 40 percent. In realterms, these cuts would be even larger. Cuts ofthis magnitude would transmit the wrong, politicalmessage to Pakistan (and others). It wouldundermine, once again, our credibility as areliable collaborative partner. It would beinconsistent with our expectation that pakistan'ssecurity and stability will continue to be centralto our goals ano. interest in Afghanistan, the Southand Southwest Asia, and in the Persian Gulf.·

DISCUSSION

The $1.625 billion package comes to a close in FY 1987.USAID was instructed by AID/W to use Approved AssistancePlanning Levels (AAPL) for the post-87 period. These areconsiderably lower than the $325 million annual levels at theend of the six year package. Program totals for FY 1982 toFY 1993, as directed by AID/Washington and currently shown inthe approved FY 86 CDSS, are as follows (in millions ofdollars inclusive of $50 million per year in P.L. 480 TitleI ) :

Table 1

ApprovedFY 1982 to FY 1987 Program and

FY 1988 to FY 1990 AAPLs

FY 1982 150 FY 1988FY 1983 250 FY 1989FY 1984 275 FY 1990FY 1985 300 FY 1991FY 1986 325 FY 1992FY 1987 325 FY 1993

250200200No LevelNo LevelNo Level

The sharp decline in nominal level has been questioned by thacountry team. This decline is even greater when measured inreal terms.

The constant value of the FY 1988 to FY 1993 program,inclusive of $50 million per year in P.L. 480 Title I funding(assuming AID/WIS guidance for the Fy 1990 level isstraight-lined through FY 1993 and a 5% per annum inflationrate) is shown in the following table:

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Table 2

Nominal and Constant 1987 Value of AAPLs

Constant Difference inFiscal value (1987 Real value fromYear Nominal Value Dollars) FY 1987

C$ Millions) ($Millions) ($Millions)

1987 325 325.00 N.A.

1988 250 238.10 - 86.901989 200 181.41 -143.591990 200 172.77 -152.231991 200 164.54 -160.461992 200 156.71 -168.29-1993 200 149.24 -175.76

Total FY 1988 to FY 1993:1,250 1,062.77 -887.23

(Inflation rate = 5% Base Year = 1987)

OPTION 2: CONTINUATION OF NOMINAL LEVEL OF 1987 ASSISTANCE($325 Million)

PRO: Would signal our continued commitment to Pakistan'ssecurity needs and the continued importance ofU.S./Pakistan relationship.

Would permit an orderly completion of projectsbegun under the current program.

CON: Assumption concerning resource availabilities maybe unrealistic.

Could tend to reduce pressule on GOP to make neededeconomic policy reforms.

Assumes significant increase in Pakistan'sabsorptive capacity before FY 1987.

AssuMes successful resolution of design issues, AIDand GOP approval of the Lakhra Coal/power projectfor which we have bUdgeted $125 million in FY 86and 87.

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The question remains whether implementationbottlenecks can be broken and the pipeline reducedsoon enough for a post-FY 87 program to continuethe level of current assistance.

OPTION 3: CONTINUATION OF REAL VALUE OF THE FY 1987 PROGRAM

PRO: Sends a strong signal of U.S. support

Would permit continuation of current projects andPQ~sible expansion into other sectors.

Would ease economic constraints on Pakistan'sability to maintain and strengthen its securityposture.

CON: Same as for Option 2

Mission staff constraints may precludeimplementation of this level of assistance

DISCUSSION

The following table illustrates the nominal resource levelswhich would be required to maintain the real value of the1987 Program.

Table 3

Nominal Resource Levels Required toMaintain Real Value of the FY 1987 Program

Fiscal Real Value NominalYear (87 Dollars) Value

($ Millions) ($ Millions)

1987 325.00 325.00

1988 325.00 341.251989 325 <. 00 358.311990 325.00 376.231991 325.00 395.041992 325.00 414.791993 325.00 435.53

Total FY 1988 to FY 1993: 1,950.00 2,321.15

(Inflation rate = 5% Base Year = 1987)

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Defense Assumptions' The original six year economicassistance package was directly linked to the five yearmilitary assistance program. $1.625 billion of economicassistance was intended, in part, to offset the financingcosts associated with $1.535 billion in Foreign MilitarySales. LOOking ahead to the post-1987 period, the countryTeam is agreed that the GOP will be able to make a strongcase for sUb~tantial defense procurement and that the foreignexchange cost associated with the operation, maintenance andreplacement of the equipment purchased with the initial$1.535 billion in FMS credits will also be considerable. TheDefense Department has not yet formally projected an FMSplanning level beyond FY 1987; however, the Country Teamassumptions in Dec 83/Jan 84 were that FMS levels will notdrop from their current totals. In Short, the dollarrequirements associated with the ~ombination of recurring~osts on the current assistance package, the probable post FY1987 FMS prograffi levels and the non~FMS defense procurementsfrom the United States, without consideration of any otherassistance requirements, will be greater than the current AIDplanning levels for economi~ assistance in the years after1987. The GOP would have to resort heavily to commercialmarket credit which would probably not be forthcoming in theamount required.

An option outside the scope of this paper would be to proposepartial -grant-back- of FMS credit obligations each year toassure that FMS repayments are never more than a specifiedpercentage (e.g. 50 percent) of economic aid commitments.This would mean shifting a substantial amount of the resourcetransfer requirements for pakistan from ESF to FMS to meetBalance of payments needs. The GOP has resisted acceptanceof concessional FMS for political reasons (the appearance ofdependence) but may yet change its position.

The following table shows the projected repayment stream forthe current FMS program through FY 1993 assuming similarlevels and terms are repeated during FY 1988 to FY 1993.

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FiscalYear

198819891990199119921993

CurrentProgram(l Millions)

239263284284266247

Current ProgramRepeated DuringFY 88 to 93--rl Millions)

84563

124192239

Total($ Millions)

247308347408458486

Total FY 1988 to FY 1993:1,583 671 2,254

ISSOE C: THE MIX OF ESF, DA., P.L.-480 RESOURCES

OPTION 1: CONTINUE CURRENT EMPHASIS ON ESF

PRO: The Economic Support Fund (ESF) is designed forassistance to countries such as Pakistan which areof particular security and political importance tothe United States.

ESF is a more flexible mechanism than DA(Development Assistance).

ESF can provide direct balance of payments supportor imports essential to sustain economic activityand restore equilibrium.

Where longer term political and economic stabilityis the primary concern, ESF may be used to addressbasic development needs or to improveinfrastructure.

DA carries with it increased workload requirementsto balance accounts, conform to loan floors, etc.

CON: ESF may be less available relative to DA to supportfunding levels required for pakistan program.

OPTION 2: INCLUDE INCREASING LEVELS OF DA IN PLACE OF ESF

PRO: With increased demands worldwide on ESF it may benecessary to include larger amounts of DA to bringPakistan funding to appropriate levels.

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The Pakistan program, as structured, providesBalance of payments support through ~rojects whichare as developmental in character as those fundedelsewhere with DA funds.

CON: Mixing DA with ESF complicates the budgetingprocess, since DA must be programmed by specificaccounts and is subject to other restrictions, suchas the requirement that DA funding be matched by aspecific amount of host countrj counterpart localcurrency.

There are increasing pressures worldwide on theavailability of DA funding.

Economic Support Funds are the most appropriatemechanism for funding assistance to countries whichare of strategic importance to the u.s.

OPTION 3: CONTINUE PRESENT LEVELS OF P.L. 480 TITLE I

PRO: Current $50 million a year level makes asUbstantial contribution to Pakistan's Balance ofPayments needs.

Current levels permit policy dialogue with respectto oil seed, helping to move Pakistan towardincreased domestic production through pricing andother reforms.

CON: Availability of P.L. 480 resources is problematic,given demand in other countries.

OPTION 4: INCREASE LEVELS OF P.L. 480 TITLE I ASSISTANCE

PRO: Pakistan's edible oil import requirements arefundamental to its Balance of Payments position.

The P.L. 480 - Title I program is having a majorimpact on GOP policies to de-regulate theagriculture sector and to encourage domesticproduction.

CON: GOP policy development is still incomplete and maynot respond to increased incentives. The GOP mayprefer to continue to subsidize domesticconsumption through cheap imports.

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P.L. 480 reSOQrces are under pressure fromworldwide demand.

USDA wishes to retain flexibility with respect tofuture programming and will not make a definitecommitment at this time for the Post-1987 period.

ISSUE 0: THE MIX OF LOAN AND GRANT FUNDING

OPTION 1: SHIFT TO ONE HUNDRED PERCENT GRANT ASSISTA~CE

PRO: Pakistan's debt burden is growing, and its Balanceof Payments under pressure as a result of thegrowing import bill, declining remittances fromoverseas workers, the need to modernize itsmilitary defenses and the task of caring for morethan two million Afghan refugees.

The debt-service ratio will rise rapidly, from 19percent in 1988 to a virtually unsustainable 32percent in 1993, unless Pakiqtan improves itsexport performance or implements effective importsUbstitution programs. Additional FMS credits andESF assistance in the period after our presentmUlti-year programs expire could support efforts· toimprove exports and promote import substitution.

The GOP currently (FY 1985) receives $300 millionin U.S. economic assistance, but pays the u.s. $150million a year in debt service and has an annualtrade deficit with us of excess of $600 million.U.S. quota policies with respect to cotton textilesmake it difficult for Pakistan to increase exportsover the short term.

CON: Provision of additional grant assistance may reducethe pressure on the GOP to undertake the economicand fiscal policy reforms needed to stimulatedomestic resource mobilization, production andexports.

OPTION 2: CONTINUE CURRENT MIX OF TWO-THIRD G&\NT/ONE-THIRDLOAN

PRO: Currently established loan levels support purchaseof commodities at concessional rates.

Loan financing imposes some discipline uponcommodity selection by the GOP.

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CON: One hundred percent grant financing would furthersupport Balance of Payments objectives.

ISSUE E: MAJOR SECTOR CONCENTRATIONS

OPTION 1: MAINTAIN CURRENT EMPHASIS ON ENERGY,AGRICULTURE AND IRRIGATION, WITH ROUGHLYTEN PERCENT OF THE PROGRAM IN HEALTH ANDPOPULATION, LESSER AMOUNTS IN SUPPORT OFNARCOTICS REDUCTION, AND PRIVATE SECTOR PROJECTS.

PRO: The approved FY 1986 AID/Pakistan CountryDevelopment Strategy Statement provides amplejustification for current investments and, in lightof the Pakistan's long run problems, issUbstantially valid for the Post-FY 87 period.

pakistan must develop its indigenous energyresources to offset rising consumption, reduce itsdependence upon imported oil and build theinfrastructure for long term industrialization.

Irrigation is the backbone of Pakistan'sagriculture sector which employs aboutthree-fourths of the population.

The potential for increased agricultural productionis significant, but dependent upon improvedtechnology as well as irrigation.

The United States has a comparative advantage overother donors in providing the technologies requiredby Pakistan's energy, agriculture and irrigationsectors.

The rapid growth of Pakistan's population is thekey factor which cuts across all sectors, impedingdevelopment and threatening political and socialstability. If the rate of population increase isnot curbed, progress in all other sectors will befurther undermined.

The U.S. will continue to have a vital interest inhelping the GOP eradicate opium poppy productionand maintain an opium-free Pakistan.

- 17 -

CON: Given twenty complex projects and a hundred longterm contractors spread nationwide, GOP resistanceto basic concepts of cost recovery and privatesector development, the weak institutionalstructure which obtains throughout the pUblic andprivate sectors and the relatively sudden massiveinputs of U.S. and other donor resources, theMission has achieved remarkable results thus far inthe design and obligation of the current six yearprogram. However, the program may be too large andtoo complex to continue under current missionstaffing constraints.

The Mission/GOp policy dialogue in agriculture isactive and ambitious and there has been somemovement by the GOP toward policy reform infertilizer, oil seed and other areas. Whileprivate sector de-regulation has been less than wewould wish, the Mission is hopeful for progress inseveral areas (coal, credit, energy pricing).However, further polict reform may be too slow tojustify continued heavy U.S. investment in both theagriculture and energy sectors. We may wish to cutback on the number and complexity of projects inthese sectors.

Past failures of GOP/donor efforts in the socialsectors should caution against merely continuing toprovide more of the same, especially given thetight staffing and operational expense constraintswhich the Mission will likely face Post FY-87.

OPTION 2: PHASE OUT SUPPORT FOR SOCIAL SECTOR ASSISTANCE

PRO: Without increased GOP support and significantpolicy reform in the social sectors, it is doubtfulthat our assistance can make a significantcontribution.

The GOP record in the social sectors is abysmal.Service delivery in all sectors lacks GOP budgetsupport. Education (and especia~ly femaleeducation) enrollment rates, and literacy rates areamong the lowest in Asia, affecting already lowlevels of pUblic health and sanitation, andcontributing to high mortality and high birth rates.

CON:

.-

- 18 -

We share the frustration of the World Bank, theAsia Development Bank, the UNFPA and other donorsat having been unable, after nearly 20 years ofassistance in family planning, to help pakistanincrease contraceptive prevalence beyond tenpercent of married women of reproductive age, muchless reduce the annual crude birth rate below 40births per thousand.

The social sectors are so fundamental to Pakistan'seconomic, social and political development, thatthe u.s. cannot afford to abandon its support.

A restructuring of our assistance in the healthsector (perhaps by focusing on selectedinterventions rather than on broad PHC systemsupport), could lead to improved cost-effectivenessand greater impact on infant and young child·mortality.

Increased private sector and NGO involvement inI

social marketing of contraceptives and in provisionof health care may provide the key to improvedservice delivery.

Malaria continues to be a serious problem inPa~istan and AID is the only bilateral agencyproviding significant support. Though there havebeen implementation problems, the program hasproduced results and further assistance wouldappear justified. Any new effort, however, wouldbe sUbstantially different in scope than thecurrent program (i.e., purchase of insecticideswould constitute a much smaller part of theproject).

GOP educational reforms, if enacted and supported,could lead to increased male and female educationallevels and thereby contribute to increased demandfor fertility reduction, lower mortality, andincreased productivity in other sectors.

OPTION 3: INCREASE U.S. SUPPORT FOR SOCIAL SECTOR POLICYREFORM

PRO: As stated above, the social sectors are fundamentalto Pakistan's development in all the other sectors.

•- 19 -

\Female' educati9n is probably the key to fertilityand mortality decline and to eventual control ofPakistan's runaway pop~lation growth. ,

CON: The GOP has historically under invested in thesocial sectors and shows little real committment tothe policy reforms and bUdge~ allocations necessaryfor meaningful progress.

In view of the Mission's staff and operationalconstraints, we will probably have to cut thenumber of projects which we can adequatelysupport. The social ·sector projects are among thepoorest performers.

ISSUE F: THE MIX OF QUICK DISBURSING (COMMODITY ASSISTANCE) ANDLONGER-TERM (TECHNICAL ASSISTANCE)

OPTION 1: CONTINUE CURRENT MIX (COMMODITIES ARE 60 PERCENT OF-PROGRAM)

PRO:. Pakistan's Balance of paYments situation requiresquick disbursing commodity assistance.

Commodity Assistance is less staff-intensive.Given concerns over the security of Americans inpakistan, it-is not prudent to further increasenumbers of U.S. direct hire employees orcontractors.

The GOP feels that even currently authorizedamounts of TA are excessive.

CON: The GOP has resisted private sector participationin our commodity import programs.

Efficient technology transfer in pakistan requiresincreasing amounts of technical assistance, toensure that Pakistan's long term development needsare met.

OPTION 2: INCREASE THE RATIO OF TECHNICAL ASSISTANCE ANDIN-COUNTRY TRAINING

PRO: Increased technical assistance is essential to thedevelopmental aspects 0 the Pakistan program, toinstitution building and the policy reforill.

20 -

CON: Balance of payments considerations are paramount inhe design of our Post-FY 87 Program.

Security considerations preclude increasing thenumber of U.S. direct hire or contr~~t personnel inPakistan.

ISSUE G: CO-FINANCING

OPTION 1: CONTINUE PRESENT LEVEL OF CO-FINANCING

PRO: The Mission has successfully negotiatedco-financing arrangements with the World Bank(Irrigation Systems Management), the AsiaDevelopment Bank (Rural Electrification), theUnited Nations Fund for Drug Abuse and Control(Narcotics Reduction) and is actively engaged indiscussions with other donors for. co-financing ofthe Lakhra and TIPAN projects.

Current and planned co-financing arrangementsdirectly affect one-fourth of our $1.6 billionprogram and indirectly affect much more.

Co-financing has potential for energizing GOPpolicy reform.

Large capital infrastructure projects in energy andagriculture, vital to pakistan's long termdevelopment and which would otherwise drain GOPforeign exchange resources, can be efficientlyundertaken under co-financing arrangeQents.

CON: Other donors have interests, schedules andconceptions which are not always congruent withthose of the U.S.

Co-financing requires tedious, long-termnegotiations and frequent delays in projectimplementation.

OPTION 2: INCREASE LEVELS OF CO-FINANCING

PRO: Same as for Option 1

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CON: Increased co-financing may increase Missionstaffing and contractor workload due to the needfor intensive and extended negotiations andcoordination with the GOP and other donors.

CLEARANCESDAA!ASIA:ESSTap1es (draft)SIA/GC:HMorris (draft)ASIA/DP:LCrandall (draft)ASIA/PD:BPratt (draft)ASIA/TR:BSidman (draft)PPC/PB:FYoung (draft)FVA/FFP:WRhoads (draft)S&T/PRO:KMilow (draft)STATE/NEA/PAB:JLarocco (draft)Treasury:JWeeks (draft)Commerce:SBelinsky (draft)USDA:DKunke1 (draft)