ISLAMABAD: Foreign loan disbursements plunged by nearly two-thirds to just $2.8 billion in first eight months of the current fiscal year, suggesting that the government remained unable to remove bottlenecks that were hampering the release of funds for different projects.
The delay in finalisation of a bailout package with the International Monetary Fund (IMF) has also blocked policy loans in addition to forcing the government to postpone the issuance of Eurobonds.
The disbursement of $2.75 billion in loans from July to February of the current fiscal year did not include the emergency loans of $7 billion from Saudi Arabia, the United Arab Emirates (UAE) and China, showed official statistics.
Finance ministry’s spokesman Dr Khaqan Najeeb said on Friday the Saudi oil facility of $3 billion would become operational from April. He said the remaining $1 billion in loan from the UAE could also be disbursed next week.
Pakistan also expects $2.1 billion in Chinese commercial loan disbursement on upcoming Monday.
However, the loan disbursements from July through February were equal to only 31% of the original annual estimate of the finance ministry.
Owing to the low disbursements, the central bank’s gross foreign currency reserves have remained under pressure, standing at $8.8 billion even after arrival of $7 billion from three friendly countries. China gave $2 billion in loan in July last year followed by $3 billion that Pakistan got from Saudi Arabia and $2 billion from the UAE.
The financial assistance from these countries has been shown on central bank’s books.
The disbursements in July-February 2018-19 from international creditors were down $4.6 billion or 63% compared with the loans received in the same period of previous fiscal year. In July-February FY18, Pakistan had received $7.3 billion in loans on the back of $2.5 billion worth of sovereign bonds and $1.8 billion in commercial loans.
Finance Minister Asad Umar has been trying to improve the situation including amending Public Procurement Regulatory Authority (PPRA) rules. However, the usual bureaucratic snags have not been removed so far.
The government is also trying to develop a mechanism for fast-track approval and implementation of foreign-funded projects. But so far the system has not improved.
Foreign loans are not sufficient to meet Pakistan’s growing financing needs and the slowdown has put pressure on the foreign currency reserves. Over the past few weeks, the central bank has also conducted open market operations to mop up dollars as part of its strategy to gradually let the rupee depreciate against the US dollar, said sources in the central bank.
Last week, Pakistan requested the Asian Development Bank (ADB) to approve $500 million in policy loan before June. But the lender may not pay heed until it gets a letter of comfort from the IMF.
Beijing in February 2019 released $85.3 million, largely for China-Pakistan Economic Corridor (CPEC) projects, taking its contribution to $1.2 billion in the past eight months. The loans have largely been disbursed for the Sukkur-Multan motorway ($669 million) and Havelian-Thakot project of CPEC ($223 million). These two projects got 73% of the total Chinese financing in eight months.
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Chinese loans were equal to 44% of the total disbursements for Pakistan from July through February, according to the officials.
The country received $350.8 million from the ADB till February, far lower than the estimate. The World Bank disbursed only $162 million, down nearly 50% from disbursements in the previous fiscal year.
The Islamic Development Bank (IDB) disbursed an additional $91.4 million last month, which took its total loans for Pakistan to $394 million in eight months. IDB’s disbursements were down 57%.
Foreign loan disbursements drop to $2.2b in first half of FY19
The IDB has given these commercial loans for oil purchase from Saudi Arabia. So far, Pakistan has been promised three oil facilities worth $575 million for the current fiscal year.
Published in The Express Tribune, March 23rd, 2019.
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