Financing economic development through foreign assistance: Implications of soft and silent devaluation in Pakistan
2001
Ellahi, M. (Government of Punjab, Lahore (Pakistan). Planning and Development Dept.) | Mahboob, H.
The use of foreign assistance is generally considered as a panacea for financing economic development in Pakistan. The foreign-assisted projects are often appraised at the given Rupee- Dollar exchange rate. The appraisal criteria imply that a project is economically viable and likely to generate enough surplus to repay the loan. However, if the feasibility is based on future exchange rate, the project becomes unviable. This study examines the effect of changes in the Rupee- Dollar exchange rate on financial and economic viability of the project. The analysis depicts that financing of economic development through foreign loans turns out to be an infeasible option as the major part of the returns are swallowed by continuous appreciation of foreign currencies in which loan is received and repaid. It is also observed that economic viability is more promising than the financial one. Thus, foreign consultants generally conduct the former for selling project loans, while the latter is more relevant from taxation and debt servicing view points.
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