(1) Pakistan's Position in Japan's ODA

Japan is providing assistance to Pakistan, taking into account the following factors.

However, in May 1998, Pakistan conducted its first underground nuclear tests, in response to India's same tests. Japan responded by strongly urging Pakistan to call off its testing and development of nuclear weapons and halting all new grant aid (with the exception of aid of an emergency and humanitarian character and grant assistance for grassroots projects) and new yen loans, in accordance with Japan's ODA Charter.

Pakistan is the seventh largest recipient of Japanese bilateral aid (based on cumulative net disbursements up to 1998).

(2) Priority Areas for Japan's ODA

On the basis of studies and research concerning development conditions, tasks, and development plans in Pakistan, as well as policy dialogues between Japan and Pakistan, including the High-Level Mission on Economic and Technical Cooperation sent to Pakistan from February to March 1996 and subsequent policy dialogues, Japan has given priority to assistance in the areas described below.

(3) Matters for Consideration

• Consistency and transparency of policy are essential to Pakistan's development policies and plans. There is also need for support to improve implementation capabilities through the fostering of human resources in Pakistani implementing organizations.
• There is room for greater utilization of Japanese technical cooperation by Pakistan. In addition to combining technical and capital cooperation, there is a need to strengthen the participation of NGOs and international aid organizations and consider assistance to the socially vulnerable and WID (women in development).
• In order to build a sound financial base, there is a need for reform of the tax collection system and reform of the economic structure, beginning with the privatization of the power industry. There is also need to consider measures for the development of a sound financial system and for the building of an investment environment that meet the conditionalities of the IMF and the World Bank.

(4) The Situation Regarding the ODA Charter

In light of serious international and domestic concern regarding the possibility of Pakistan developing nuclear capability, Japan held bilateral consultations with Pakistan on nuclear non-proliferation and aid policy dialogues, urging Pakistan to exercise self-restraint. Using these and other opportunities, Japan has expressed its concerns to Pakistan, continuing to urge Pakistan to sign the Nuclear Non-Proliferation Treaty (NPT) and the Comprehensive Test Ban Treaty (CTBT). Japan has also sought greater transparency in Pakistan's nuclear-related programs.

In May 1998, India conducted nuclear tests; Japan, through the dispatch of a prime ministerial envoy, urged Pakistan to exercise the maximum self-restraint. The same month, however, Pakistan conducted its own nuclear test. Japan called on Pakistan immediately to cease both its nuclear weapons tests and the development of nuclear weapons and to unconditionally sign the NPT and the CTBT. Japan also took measures to stop all new grant aid (with the exception of aid of an emergency and humanitarian nature and grant assistance for grassroots projects) and all new yen loans, and announced it would adopt a cautious attitude toward multilateral development bank loans to Pakistan.

At the June 1998 G8 foreign ministers' meeting, participating countries decided to postpone deliberations on funding to Pakistan in areas other than basic human needs assistance through international financial bodies such as the World Bank. This, in addition to economic measures applied by the major countries created a rapid worsening in Pakistan's already unstable economic situation. In February 1999, Pakistani Prime Minister Sharif announced the Lahore Declaration at the India-Pakistan summit meeting, reducing tensions with India and setting the stage for the building of trust between the two countries. During the November 1998 visit of the Pakistani foreign minister to Japan, there was a clear statement of intention regarding two issues: signing of the CTBT and the creation of a law that would restrict the export of missile parts and nuclear technology from Pakistan. Japan joined with other G8 member countries in supporting emergency support measures through the IMF in recognition of Pakistan's economic distress. In light of Pakistan's efforts, Japan will continue to monitor the situation and consider the resumption of bilateral economic cooperation, although Japan once again asked Pakistan to exercise self-restraint after its April 1999 mid-range ballistic missile tests.

(1) Major Economic Indicators

(2) Current Situation

The Sharif government placed priority on reviving the economy and increasing agricultural production through mid-term policies that would promote industry, including tax reductions and increase the price at which the government purchases wheat. In November 1997, the government announced new investment policies that provided tax incentives and opened most sectors to foreign investment. On the other hand, chronic shortages of foreign currency and the halting of financing and assistance through international financial bodies and donor countries as a result of its May 1998 nuclear tests, put Pakistan in a precarious economic situation. In September 1998, Prime Minister Sharif announced at the UN that Pakistan would sign the CTBT by September 1999. As a result, the IMF announced a support package to Pakistan, the World Bank resumed structural adjustment financing and Pakistan was able to reschedule $3.3 billion in debt repayments under the Paris Club and to avoid deepening its economic troubles. Pakistan must now, in addition to meeting the conditionalities of the IMF, undertake the reform of its economy.

(3) Tasks to Be Addressed

• Implementing fiscal reform, including tax reform and curtailment of non-development expenditures
• Controlling inflation
• Continuing economic liberalization through deregulation in various areas and privatization
• Strengthening the international competitiveness of industry
• Reducing the trade deficit
• Implementing measures to alleviate poverty and controlling the high population growth rate
• Enhancing social services such as education, and health and medical services
• Upgrading the economic infrastructure, including the areas of electric power and transportation
• Boosting agricultural productivity in order to achieve a stable, self-sufficient food supply

(1) Japanese Assistance

(2) Assistance from DAC Countries

(3) ODA from International Organizations

(1) Sri Lanka's Position in Japan's ODA

Japan provides assistance to Sri Lanka, taking into account the following factors.

Sri Lanka is the 9th largest recipient of Japan's bilateral aid (based on cumulative net disbursements up to 1998), and Japan is the largest provider of assistance to Sri Lanka.

(2) Priority Areas for Japan's ODA

On the basis of studies and research concerning development conditions and tasks in Sri Lanka and its development plans, as well as policy dialogues between Japan and Sri Lanka, including the High-Level Mission on Economic and Technical Cooperation sent to Sri Lanka in March 1991 and subsequent policy dialogues, Japan has given priority to assistance in the following areas.

In addition to the above five areas, priority has been placed on the environment in recent years, with assistance provided for waste disposal and improving the living environment.

(3) Matters for Consideration

In December 1995, the Sri Lankan Army quelled resistance in the western part of the North Jaffna Peninsula (including the city of Jaffna) which is the base of operations for the Liberation Tigers of Tamil Eelam (LTTE). Since that time, however, the dispute has continued with sporadic battles in the north and east, and bomb attacks by LTTE activists in Colombo and the surrounding area that have targeted political figures, army and police facilities, and key economic institutions. While such terrorist acts are not directed at the foreign community, it is nonetheless necessary for Japan to take steps to consider measures to ensure that experts and JOCV volunteers in Sri Lanka do not become victims of such acts. Since May 1995, the entire Jaffna peninsula has been placed under Sri Lankan army control, and the government has called on donors to assist in rebuilding this area. Japan continues to examine what support is feasible for this area, while continuing to monitor the substantial public safety problem.

(4) The Situation Regarding the ODA Charter

The government of Sri Lanka is making efforts to protect and improve human rights. Nevertheless, Japan will continue to monitor the human rights situation in the strife-torn northern and eastern regions.

(1) Major Economic Indicators

(2) Current Situation

Sri Lanka has been moving forward with structural reforms including privatization, such as the private capital investment in Sri Lanka Telecom (in August 1998, NTT purchased 35% of the company's shares and is participating in management) and the partial sale of shares in Air Lanka (in April 1998). There was concern that the influence on the fiscal deficit of the increase in military spending to deal with internal conflicts would have a negative effect on external business, but with the help of earnings from the privatization of national enterprises in 1999 the fiscal deficit as a ratio of GDP dropped to 4.5% in 1997 from 7.8% in 1996, although it rose once again to 9.2% of GDP in 1998. The GDP growth rate recovered from 3.8% in 1996 to 6.4% in 1997, while the inflation rate fell to 9.6% in 1997 (from 15.9% in 1996). Overall economic activity is steady, although it slowed in 1998 due to the effects of the Asian economic crisis.

(3) Tasks to Be Addressed

• Bringing about national peace through a peaceful settlement of the conflict in the northern and eastern regions
• Reducing the fiscal deficit and continuing structural adjustment efforts, including the privatization of state enterprises
• Creating better investment conditions, including improved social and economic infrastructure for expanding private investment from abroad

(1) Japanese Assistance

(2) Assistance from DAC Countries

(3) ODA from International Organizations