ISLAMABAD: Pakistan’s foreign loans in first nine months of the current fiscal year reached $5.6 billion due to $2.6 billion worth of commercial lending by China last month, which helped the government keep its foreign currency reserves in double digits.
Against an official announcement of receiving $2.2 billion in commercial loan from China, the country actually extended $2.54 billion in March alone, highly placed sources in the Ministry of Finance told The Express Tribune.
They said the Chinese government provided the loan through two commercial banks. China Development Bank gave $2.24 billion in short-term loan while Industrial and Commercial Bank of China (ICBC) also disbursed $300 million in March.
China has once again emerged as a saviour of Pakistan. Of the $5.6 billion in foreign loans, China disbursed $3.8 billion or 67.2% of the total lending including project financing. From July through March, China provided $1.3 billion in project financing, mainly for the China-Pakistan Economic Corridor (CPEC) projects.
Rescheduling or rollover of Chinese loans has become critical in finalising a deal between Pakistan and the International Monetary Fund (IMF). The United States wants to ring-fence IMF money in order to stop Pakistan from using such funds for repaying Chinese loans.
The cumulative disbursement of foreign loans in July-March of the current fiscal year stood at $5.6 billion, according to the sources. However, there is another $7-billion borrowing that the Pakistan Tehreek-e-Insaf (PTI) government is not showing on the central government’s books.
The financial assistance from three friendly countries – China, Saudi Arabia and the United Arab Emirates (UAE) – has been shown on central bank’s books. China gave $2 billion in loan in July last year, followed by $3 billion from Saudi Arabia and $2 billion from the UAE.
Hence, total foreign loans for balance of payments support, budgetary support and project financing amounted to $12.6 billion from July through March FY19.
Despite this huge $12.6-billion lending, the central bank’s gross foreign currency reserves have remained under pressure, standing at $10.2 billion at present, which are lower than gross receipts of loans.
This shows that there is no truth in the PTI government’s claim that the slide in foreign currency reserves has been stopped due to corrective policy measures.
Pakistan hopes that the blocked budgetary support will soon be restored after signing a $8-billion bailout package with the IMF. It also expects to again return to the international capital market either in June or July, subject to the signing of the IMF deal.
The PTI government had earlier shelved the proposal of floating Eurobond due to its high cost in the absence of an IMF deal.
Out of $5.6 billion, the bilateral assistance amounted to $1.4 billion or nearly one-fourth of the total lending. But almost the entire amount came from Beijing under CPEC financing. Loans have largely been disbursed for the Sukkur-Multan motorway, Havelian-Thakot project of CPEC and Lahore Orange Line project.
Japan, which is among top five lenders, disbursed only $50 million in first nine months of the current fiscal year.
Commercial financing, which remained low until February, jumped to $3.1 billion or 55% of total financing last month. An amount of $2.6 billion was given by China, $295 million by a consortium of Credit Suisse AG, UBL and ABL and $184 million by Dubai Bank. Pakistan has, for the first time, taken $74 million in loan from Ajman Bank PJSC. Noor Bank PJSC disbursed $20 million in previous months.
The lending by multilateral agencies amounted to $1.2 billion or one-fifth of the total disbursements. The country received $364.3 million from the Asian Development Bank (ADB) till March, far lower than estimates. The World Bank disbursed only $193.2 million, which indicated that despite approval of loans, disbursements were not picking up.
The Islamic Development Bank (IDB) disbursed an additional $117.6 million last month, which took its total loans for Pakistan to $511 million in nine months. The $117.6 million is part of the $275-million ITFC Murabaha Agreement.
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, April 18th, 2019.