Pakistan plans to borrow record $13b next fiscal year

Amount is 63% higher than current year’s original estimates

ISLAMABAD: Pakistan has planned to borrow a record-breaking $13 billion in the next fiscal year alone, nearly 63% higher than the outgoing fiscal year’s original estimates, meant largely to repay previously obtained loans and stabilise nose-diving foreign currency reserves.

The provisional estimate to borrow $13 billion has been prepared for the budget 2018-19 the PML-N government wants to unveil on April 27, said sources at the Ministry of Finance. If the plan materialises, it will be the highest borrowing in a single year in Pakistan’s 71-year history.

In fiscal year 2016-17, Pakistan borrowed $10.4 billion. However, it has not yet confirmed whether the government will present a realistic plan of Foreign Economic Assistance in parliament on April 27 or like previous five occasions, it will understate the foreign borrowing plan.

The estimated foreign borrowings for fiscal year 2018-19 are $5.1 billion or 63% higher than the original estimates for fiscal year 2017-18. Former finance minister Ishaq Dar had presented only $8 billion as the foreign borrowing plan in parliament for the outgoing fiscal year. However, the government has already borrowed $7.3 billion in just eight months.

The plan does not include borrowings from the International Monetary Fund (IMF), as at this stage the outgoing government does not want to avail another bailout. It has relied heavily on extensive foreign borrowings to remain afloat, as the government has failed to attract non-debt creating foreign inflows.

During its first four and a half years, the PML-N government took over $40 billion in foreign loans, throwing the country deep into debt.

The IMF has recently projected that Pakistan’s external debt and liabilities will peak to $93.2 billion by June this year, which in 2013, when the PML-N took over, were nearly $61 billion. The government will have added over $32 billion in five years.

For the next year, a majority of the loans, amounting to $4.7 billion, has been estimated to be received from three multilateral agencies - the World Bank, the Asian Development Bank (ADB) and the Islamic Development Bank (IDB). The ADB loans for next fiscal year are estimated at $1.1 billion, the IDB loans at $1.5 billion and the World Bank at $2.02 billion. The World Bank’s loan estimates appear unrealistic, as the lender is unlikely to give huge sum without the IMF umbrella.

From bilateral sources, Pakistan expects $3.5 billion in loans in the next fiscal year, said sources. This included $2.9 billion from China alone, which in recent years has become the country’s single largest helper.

Pakistan also plans to float $3 billion worth of Euro and Sukuk bonds, partly to repay the previous loans obtained by the PML-N.  In April 2014, the PML-N government had raised $1 billion for five years at a fixed rate of 7.25% through the Eurobond. This bond will mature next fiscal year.

The government also plans to take $2 billion foreign commercial loans, which remains its favourite tool in past five years to relieve pressure from the external account.

These loans will help meeting external financing needs and cushion foreign currency reserves, sources added. Official gross foreign currency reserves are already close to $11.5 billion, which the IMF believes would slip to $9.3 billion by June this year, provided the government remains unable to contract sufficient foreign loans.

“An elevated current account deficit and increased external obligations are expected to double external financing needs in the medium term, taking a further toll on foreign exchange reserves,” according to the IMF’s recent report on Pakistan’s economy.

It added that a higher current account deficit and rising external debt servicing are expected to lead to higher external financing needs, which could increase to $27 billion in fiscal year 2018-19.

The IMF has projected that in the next fiscal year Pakistan’s current account deficit could be as high as $4.4% of GDP.

Published in The Express Tribune, April 15^th, 2018.

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