Amid transparency concerns, the Pakistan government has borrowed $408 million from Switzerland-based financial group Credit Suisse without ensuring competitive bidding.
With the latest borrowings, the loans Pakistan has taken from foreign banks within the last six months has risen to a whopping $1.4 billion. Of this, $658 million is from Credit Suisse alone.
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The government entered into an agreement with Credit Suisse on March 29 to borrow $408 million, according to official documents and sources in the finance ministry. But like other similar transactions, the ministry did not invite bids through advertisements in the press for it, officials said.
The terms of the deal remain elusive while the finance ministry has refused to comment.
According to the Public Procurement Regulatory Authority (PPRA) Ordinance 2002, all public procurements of over Rs2 million have to be advertised on the ministry’s website and in newspapers. However, the PPRA Board has the authority to grant exemptions for certain procurements ‘in the national interest’.
Sources in the finance ministry claim the borrowings from foreign banks were purely ‘commercial deals’ and even the prime minister does not have the lawful authority to give exemptions without following due process.
It is also not clear whether the finance ministry sought PPRA Board’s approval for the latest loan.
Explaining the move, sources in the finance ministry say the government has no option but to borrow from the Credit Suisse to increase its Net International Reserves (NIR) to $9.3 billion, a target set by the International Monetary Fund (IMF).
This is evident in how the government borrowed the funds just two days before the close of the January-March quarter.
The move once again exposes the hollowness of the government’s much-touted claim about its foreign currency reserves in addition to putting a question mark over its claim of stability in external accounts.
The gross foreign currency reserves of the central bank are currently over $15 billion.
Pakistan has been tapping these unconventional and expensive sources to build its foreign currency reserves and to finance the budget.
Sources in the finance ministry say the government was not in a position to avoid short-term expensive loans. In September 2015, the government had also borrowed $250 million from Credit Suisse.
The government has further borrowed $340 million from Dubai-based Noor Bank under two separate deals signed in September and December last year. An amount of $350 million was also borrowed from foreign operations of the UBL Bank in December last year.
Although the government has borrowed $1.4 billion from a handful of handpicked foreign banks, the matter has not yet come on the radar of the opposition which clamoured when the federal government borrowed $500 million by issuing expensive Eurobonds last year.
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The $1.4 billion in loans that the government secured from foreign commercial banks is far more than what it received from the World Bank, the Asian Development Bank and China –its three main development partners -- individually during this period.
Cumulative borrowings through Eurobonds and commercial banks in July-March period stood at $1.9 billion, which comprise almost 35% of the total foreign economic assistance of $5.4 billion during this period.
The other worrisome element is the fast shrinking project financing extended by the Asian Development Bank, World Bank and bilateral traditional sources.
In nine months, the country received $1.5 billion in project loans, which was hardly 40% of the annual estimates.
Published in The Express Tribune, May 3rd, 2016.
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