Despite expectations, Pakistan gets just $1.5b in foreign loans

Officials expect boost, as modalities for Chinese commercial loans are being discussed

ISLAMABAD: The disbursements of foreign loans still remains low, as Pakistan has received only $1.5 billion in the first four months of this fiscal year, amid expectations that inflows may improve in the coming months on back of support from China in shape of foreign commercial loans.

From July through October of fiscal year 2018-19, international creditors disbursed $1.46 billion loans, according to officials of the Ministry of Finance. Last month, Pakistan received another short-term commercial loan facility of $160 million, this time from Dubai Islamic Bank (DIB), said the officials.

It was the second commercial deal in last as many months. Earlier, Pakistan contracted $170 million commercial loan with a consortium led by Credit Suisse AG. The commercial loans are becoming expensive due to increase in London Interbank Offered Rate (Libor) interest rates. Most of these loans are signed at floating Libor plus 3% rates, said the officials.

As against $1.46 billion worth disbursements in the first four months of this fiscal year, the lenders had given $2.3 billion in the same period of last year, reflecting a reduction of nearly 37%. The $1.46 billion loans are exclusive of $1 billion Saudi Arabian facility that Pakistan received this month. But this will not be reflected in November’s disbursement data, as the money will be placed with the State Bank of Pakistan (SBP) as deposit.

The foreign loans are not sufficient to meet Pakistan’s growing financing needs. The finance ministry authorities are expecting a boost in inflows in the next couple of months, as the modalities for Chinese commercial loans are being discussed, said the officials.

China has not yet extended any commercial facility in the current fiscal year. In past two fiscal years, Chinese financial institutions had provided nearly $4.8 billion commercial loans, excluding the SAFE Deposits.

The Ministry of Finance and the SBP 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. The government’s efforts to secure a bailout package from the International Monetary Fund (IMF) have so far remained unsuccessful.

In October alone, the lenders disbursed $469.2 million, including $160 million in commercial loans. Bilateral and multilateral lenders did not release funds for a majority of projects funded by them due to slow progress on these schemes. The cut on Public Sector Development Programme (PSDP) is affecting the overall disbursements against these projects due to a lack of local funding component.

However, China in October released another $102 million for the China-Pakistan Economic Corridor (CPEC) project, taking its contribution to $528 million in the past four months. In this fiscal year, China has given $266.8 million for Sukkur-Multan motorway, $65.7 million for Havelian-Thakot project of CPEC and $185 million for the Lahore Orange Line project.

The $528-million Chinese loans were equal to 36% of the total economic assistance that Pakistan received from July through October, according to the officials. The multilateral lenders provided $470 million or nearly one-third of the total loans. The commercial loans made 27% of the total disbursements.

Amid a steep decline in the foreign currency reserves, the Pakistan Tehreek-e-Insaf (PTI) government has been trying to persuade Saudi Arabia, United Arab Emirates and China to deposit money in the SBP’s reserves for soothing panicked markets. Saudi Arabia was the first country that promised to give a bailout package worth $6 billion to help Pakistan avert a default-like situation. Saudi Arabia also gave $16.5 million for project financing in the first four months.

Loan disbursements by multilateral creditors remained very low in the first four months. The country received $139.4 million from the Asian Development Bank (ADB) as against $160 million in the last fiscal year. The World Bank disbursed $79.3 million as against $146 million in the same period of the previous year. The Islamic Development Bank disbursed $279 million during the first four months including $273 million on commercial terms for oil payments.

Published in The Express Tribune, November 27^th, 2018.

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