Despite growing need, foreign loans plunge 37% to $930m

These include commercial loan of $170m from a consortium led by Credit Suisse

ISLAMABAD: Amid growing financing needs, loan disbursements in first quarter of the current fiscal year plunged nearly 37% to $930 million at a time of uncertainty over the Pakistan Tehreek-e-Insaf (PTI) government’s policy regarding international financial institutions.

From July through September, international creditors disbursed $930 million, according to the Ministry of Finance and Economic Affairs. The amount included another commercial loan of $170 million that Pakistan contracted with a consortium, led by Credit Suisse AG, last month.



The consortium has been extending relatively expensive loans to Pakistan. The consortium, comprising Credit Suisse, Untied Bank Limited and Allied Bank Limited, has given last two loans at the six-month floating London Interbank Offered Rate (Libor) of up to 3%.

Libor has been on the rise in recent months, which will further increase Pakistan’s debt servicing cost.

As against $930 million in loan disbursements in the first quarter, the lenders had given $1.5 billion in the same period last year, a reduction of 37%.

Gross external flows were sufficient to back only 44% of the maturing external debt of $2.1 billion in the first quarter. Rest of the needs was met by drawing official foreign currency reserves that came down to $8 billion last week.

The Ministry of Finance and the State Bank of Pakistan have jointly assessed Pakistan’s external debt repayments in the current fiscal year at $11.7 billion. About $7.7 billion of these loans will mature in the second half of the year.

In September alone, the lenders disbursed $217 million, including $170 million in commercial loan. Bilateral and multilateral lenders did not release funds for a majority of projects funded by them.

China in September gave only $2.8 million, the Asian Development Bank (ADB) gave $27 million and the World Bank less than $7 million.

A delay on the part of the new government in finalising its policy options to deal with external-sector challenges is said to be one of the reasons behind slow disbursements of loans by the foreign lenders. Pakistan and the International Monetary Fund (IMF) will start programme talks on November 7 which will help determine the pace of disbursements of foreign loans.

The ADB, World Bank and Moody’s credit rating agency have been emphasising the need for mobilisation of substantial external resources to meet the overall estimated external financing requirement of $30 billion for the current fiscal year.

As a policy, the PTI government has started discouraging loans for the projects that do not offer returns to pay back the liabilities. This policy is good for the country in the long run.

Overall, in the first quarter, China gave less than $300 million in loans against the annual project loan estimate of $828 million. The $300 million did not include the $2 billion in one-off injection by the Chinese for stabilising the foreign currency reserves held by the State Bank of Pakistan (SBP).

Amid a steep decline in the foreign currency reserves, the PTI government has been trying to persuade Saudi Arabia and China to deposit money in the SBP’s reserves for soothing panicked markets.

Loan disbursements by multilateral creditors remained very low in the first three months of FY19 compared to $642 million in the same quarter of the previous fiscal year.

The country received $82.5 million from the ADB and $308 million from the World Bank in the three months.



The Islamic Development Bank disbursed $207 million in Jul-Sept FY19 and almost the entire amount was given on commercial terms for oil payments.

Saudi Arabia gave only $16.5 million in the first quarter. Economic assistance from the kingdom may pick up in coming weeks, if both the countries agree on a bilateral framework during the visit of Prime Minister Imran Khan that began on Monday.

Bilateral loans also remained low in the first quarter and major contribution came only from France that extended $31 million.

Published in The Express Tribune, October 23^rd, 2018.

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