Parliamentary panel gives clean chit to govt’s foreign loans

Pakistan has raised $1.4 billion at interest rate of up to 5.2% in last 6 months

ISLAMABAD: A parliamentary panel has given the clean chit to the government over the highly expensive foreign commercial borrowings worth $1.4 billion at an interest rate of up to 5.2% during the last six months without ensuring international competitive bidding.

From September to March of this fiscal year, the federal government raised $1.393 billion from foreign commercial banks to augment official foreign currency reserves. It completed the last transaction with Credit Suisse on March 29 to borrow $408 million. But like other similar transactions, the ministry did not invite bids through advertisements in the press for it.



While giving a briefing to Senate Standing Committee on Finance, Secretary Finance Dr Waqar Masood said that $1.4 billion had been raised at an interest rate ranging from 4.74% to 5.2%. He said that in 2014, the government also raised $150 million at an interest rate of 4.7%. In 2013, a sum of $322 million was borrowed at an interest rate of 5.4%.

Dr Masood said that foreign short-term borrowings always remain below the targets. He said that in March this year, the government had sought $500 million loans but the banks offered only $408 million.

He further said that foreign short-term borrowings had been obtained for a period of up to one and a half year. These funds had been raised for balance of payment support, meeting debt serving needs and strengthening foreign currency reserves, he elaborated.

The terms of the borrowings had been finalised either on telephone or by writing letters to the financial institutions, said Dr Waqar Masood.

Pakistan has received $49 billion in last 10 years



Dr Masood said that the government contacts all those who can provide loans and after receiving their offers, negotiations are held.

The committee had called the Finance Ministry officials for an explanation on huge short-term foreign borrowings after The Express Tribune revealed that the government had recently borrowed $408 million from the Credit Suisse without competitive bidding.

However, the committee did not confront the finance ministry and restricted the matter to only getting a briefing. Only Senator Mohsin Aziz of PTI raised the question as to why the government sought exemption from the PPRA rules. He did not even confront the Secretary when he termed foreign borrowings as ‘sensitive information’.

Earlier, the standing committee had also taken up the issue of $500 million expensive Eurobonds borrowings at an interest rate of 8.25% but later on dropped the investigations, succumbing to the government pressure.



According to the Public Procurement Regulatory Authority (PPRA) Ordinance 2002, all public procurements of over Rs2 million need 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’.

“These are sensitive borrowings and the government has obtained exemption from competitive bidding,” said Dr Waqar Masood. The foreign short-term borrowings can signal the balance of payments positions and people may take advantage of this, claimed Dr Masood.

Additionally, the Finance Secretary did not divulge the exact time as to when the government acquired exemption from the PPRA Board.

Under the law, the PPRA Board should comprise ten members including three members from the private sector. However, currently all the three positions of private members are vacant.

Dr Masood’s argument for not giving advertisement appeared flawed, as the international financial institutions have complete access to all data. Moreover, the State Bank of Pakistan periodically publishes the balance of payments tables.

Finance Minister Ishaq Dar has also repeatedly said that the international financial institutions have the ability to accurately predict the maturity of the country’s foreign debt payments. Dar often cites the example that these institutions had accurately predicted that the country would default in June 2014 and he averted the default due to prudent economic management.

Published in The Express Tribune, May 26^th, 2016.

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