ISLAMABAD: In its three-year stint, the PML-N government has obtained $25 billion as fresh foreign loans in addition to borrowing Rs3.1 trillion ($30 billion) from the domestic market for budget financing, said Ehtesham Rashid, Director General of the Debt Office at the Ministry of Finance Wednesday.
In dollar terms, the government’s total domestic and foreign borrowings amounted to $55 billion during the last three years. However, the impact of domestic borrowing is not as adverse as that of foreign borrowings due to the liberty of printing rupee amid inflation that remains under control.
Out of the $25 billion in foreign loans the government has obtained from June 2013 to June 2016, an amount of $11.95 billion was spent in repayment of previous loans, said Rashid.
Briefing the Senate Standing Committee on Finance over the state of the country’s indebtedness, he said that net addition in external debt during the last three years has been $13 billion. The debt profile the DG presented in the committee showed that both domestic and external debt was growing alarmingly at double-digit pace.
There was a net addition of $5.6 billion in the country’s external debt during the last fiscal year 2015-16, showing a growth of 28.2% over the increase in foreign debt in 2014-15, according to the Finance Ministry. Similarly, in 2014-15, the net increase in debt was $4.42 billion, higher by 53% over the increase reported in the preceding year. During the last three years, the government paid $2.74 billion in interest on foreign loans.
Out of $25 billion foreign loans, an amount of $1.85 billion was borrowed from commercial banks without competitive bidding, raising transparency concerns. While citing the work done by Dr Ashfaque Hasan Khan, Senator Saleem Mandviwalla, Chairman Standing Committee, questioned that whether the Finance Ministry was secretly borrowing from foreign sources.
However, the debt office DG maintained that the government was not secretly borrowing from abroad.
Pakistan’s debt woes
A recent report by the International Monetary Fund (IMF) revealed that Pakistan’s external debt was primarily increasing because of the government’s inability to enhance exports and attract foreign direct investment.
The much-touted ‘highest-ever’ foreign currency reserves have largely been built by obtaining expensive foreign loans, which according to independent economists is not a sustainable way to increase reserves.
The government borrowed $3.5 billion by issuing bonds in the international debt markets during the last three years, excluding the last Sukuk bond worth $1 billion that was issued this month. It obtained $9.7 billion in loans from multilateral banks including the World Bank, Asian Development Bank and Islamic Development Bank and $3.6 billion from bilateral countries. An amount of $6.2 billion of the IMF borrowings was also part of fresh debt.
The situation on the domestic front is also not different. Rashid said that during last three years, the government obtained Rs3.114 trillion in fresh loans.
Pakistan’s total debt and liabilities stood at Rs22.4 trillion as of June this year, according to the State Bank of Pakistan.
The Finance Ministry maintained that it would be incorrect to consider domestic debt maturing in the near future as posing any risk of default since the sovereign owes these debts in local currencies. It added that the total interest payment on the domestic debt as percentage of GDP was “moderate at around 4%”.
However, in absolute terms, debt servicing cost has been high, standing at Rs3.43 trillion during the last three years. The amount was higher than what the government borrowed from domestic sources during the past three years. To a question, the debt office official said that as of June this year the debt-to-GDP ratio was 66.5%.
In June, the government made a clever move to avert criticism against growing public debt. It amended Fiscal Responsibility and Debt Limitation Act of 2005 through Finance Act aimed at changing the goalposts to hide its inefficiencies.
The Finance Ministry not only diluted the law but also got relaxed the statutory limit of restricting the public debt at 60% of GDP.
Both the PPP and the PML-N governments had been in violation of this condition. Now, the government has set a new statutory deadline of June 2018 to bring the debt to 60% of GDP level as against the earlier deadline of June 2013.
Published in The Express Tribune, October 19th, 2016.