Govt on path of another foreign borrowing record

Has borrowed $5.2b in just five months compared to annual $7.7b target

ISLAMABAD: Like previous years, the government is on the path of making another record in foreign borrowings as it has acquired fresh loans of $5.2 billion in just five months of the current fiscal year, which are more than two-thirds of the annual estimate.

Excluding $2.5 billion that Pakistan borrowed by floating two sovereign bonds a few weeks ago, the foreign loans amounted to $2.7 billion from July through November of fiscal year 2017-18, reported the Ministry of Finance and Economic Affairs on Thursday.

Pakistan had floated the sovereign bonds last month but the money came in the first week of December, therefore, the ministry did not make it part of November disbursements.



By including the bond issuance, the total foreign loans the country acquired in five months stood at $5.22 billion. For FY18, the Ministry of Finance has estimated to receive $7.7 billion in foreign loans. However, like the previous year, it is set to breach the limit as borrowing of $5.2 billion is equal to roughly 68%.

The main reason for the spike in borrowings is the government’s inability to ensure non-debt creating inflows. In the first four years of the present government, exports plunged by one-fourth, remittances reached the point of stagnation and foreign direct investment was half of official projections.

For the last fiscal year, the government had targeted to receive $8 billion in foreign loans, but it closed the year at a record $10.2 billion. The trend seems to be continuing in the current year.

The current account deficit that had been recorded at $12.4 billion in the last fiscal year has already touched $6.6 billion from July through November FY18, according to the State Bank of Pakistan (SBP). The deficit was about 91% higher than the previous year.



For the full year, the finance ministry has projected $8.9 billion of current account deficit, but the five-month gap comprises almost three-fourth of the annual target.

The ministry had initially projected FY18’s gross external financing requirement at $17 billion, which during recent talks with the International Monetary Fund was revised upwards significantly.

On Tuesday, SBP Governor Tariq Bajwa said the country’s financing gap for the current fiscal year was in the range of $11 to $12 billion. The figure is close to what independent economists have forecast due to the widening current account deficit and mounting foreign debt repayments.

However, on Wednesday the SBP claimed that there was confusion about the financing gap, which it said would be $2.5 billion for the current fiscal year. The SBP did not explain whether the confusion was on the part of the governor or the media.

The $2.5-billion estimate looks highly unrealistic as it is even lower than the finance ministry’s initial conservative estimate of $5 to $6 billion.

From July through November, the finance ministry obtained $1.1 billion in short-term loans from foreign commercial banks, which were 109% of the annual projection.

In November, Standard Chartered Bank, London, gave $70.37 million in short-term loan for liquefied natural gas imports. The country has already obtained $500 million from the Industrial and Commercial Bank of China, $255 million from Credit Suisse and $267 million from Citibank.



Officials in the finance ministry told The Express Tribune that in coming months, the ministry would have to resort to massive short-term and other borrowings to meet the growing external account requirement and maintain foreign currency reserves at a decent level.

Former finance minister Dr Hafiz Pasha has projected that the SBP’s foreign currency reserves would fall to $3 billion by June 2018 excluding $6 billion worth of short-term loans that the central bank has acquired from domestic commercial banks.

Inflows from traditional sources remained very low in the first five months of FY18. The Asian Development Bank gave $221.9 million or 18% of the annual projection, the World Bank disbursed $174 million or 16.2% of the annual projection and the Islamic Development Bank disbursed $715 million or 45.7% of the annual projection.

China gave $455.3 million or 28.8% of the annual estimate.

Published in The Express Tribune, December 22^nd, 2017.

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