Jul-Nov 2018: Pakistan receives only $1.7b in foreign loans

Low disbursement unlikely to take pressure off foreign currency reserves

ISLAMABAD: In the absence of an International Monetary Fund (IMF) umbrella, foreign loan disbursements stood at only $1.7 billion in first five months of the current fiscal year that may undermine government’s efforts to take pressure off its foreign currency reserves.

The $1.72-billion loan disbursements from July through November were equal to only 18% of the original annual estimates, finance ministry officials told The Express Tribune on Monday.

The $2-billion loan that Pakistan got from Saudi Arabia to bolster the dwindling reserves is not part of these disbursements. The Saudi assistance has been shown on books of the central bank.

The official gross foreign currency reserves held by the State Bank of Pakistan (SBP) stood at $8 billion on the back of the Saudi loan that Pakistan has obtained at an interest rate of 3.18%.

The disbursements in the July-November period from international creditors were down $1 billion or 37% when compared with the loans received in the same period of previous fiscal year. From July through November 2017, Pakistan had received $2.7 billion in loans.

Last month, Pakistan received another short-term commercial loan facility of $50 million from a consortium led by Credit Suisse AG, taking its total contribution in five months to $270 million, according to the finance ministry officials.

In addition to that, Pakistan has already secured $160 million from Dubai Islamic Bank (DIB) and $20 million from Noor Bank, the UAE.

Foreign loans are not sufficient to meet Pakistan’s growing financing needs, which have now been revised downwards to $22 billion on hopes that the government would be able to curtail the current account deficit to $13 billion.



A key reason for low disbursements is the delay in finalising a bailout programme with the IMF that has affected disbursements from the World Bank and the Asian Development Bank (ADB). The government has also dropped the plan of floating $3 billion worth of Eurobond, replacing it with commercial loans.

The finance ministry expected a boost in inflows in the next couple of months as modalities for Chinese commercial loans were being discussed, said the officials. Pakistan needed to raise another $4 billion in commercial loans in remaining months of the current fiscal year if it wanted to keep the official foreign currency reserves at the current level, said sources in the finance ministry.

They said a $3-billion injection by the United Arab Emirates (UAE) would provide breathing space for three months.

But the funding from Saudi Arabia and the UAE has to be backed by lending from multilateral creditors aimed at taking pressure off the foreign currency reserves.



In November, the external creditors disbursed just $260.4 million, including $50 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.

China in November released another $120 million for China-Pakistan Economic Corridor (CPEC) projects, taking its contribution to $648.6 million in the past five months. The loans have been disbursed for the Sukkur-Multan motorway, Havelian-Thakot project of CPEC and Lahore Orange Line project.

The $648.6-million Chinese loans were equal to 38% of the total disbursements Pakistan received from July through November, according to the officials. The disbursements from China were higher than the total loans given by all the multilateral lenders.

The multilateral lenders provided $553 million or nearly one-third of the total loans. Commercial loans accounted for 26% of the total disbursements.

The country received $171.4 million from the ADB against $221 million in the same period of previous fiscal year. The World Bank disbursed just $88 million against $174 million last year.

The Islamic Development Bank disbursed $274 million in the first five months as part of oil facility compared with $672 million in the comparative period of previous fiscal year.

The World Bank and ADB are not signing budgetary support programmes due to lack of clarity on Pakistan’s macroeconomic framework.

Published in The Express Tribune, December 25^th, 2018.

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