Govt’s foreign borrowing soars to $9.5b in 11 months

Fails to meet annual projection of $9.3b in foreign loans

ISLAMABAD: The Pakistan Tehreek-e-Insaf (PTI) government has busted the annual target of foreign loans in 11 months and acquired $9.5 billion from international creditors due to repayment of previous loans and failure to achieve the $27-billion export target.

Gross foreign loan disbursements from July to May of the outgoing fiscal year were higher than the annual budgetary target of $9.3 billion, sources in the Ministry of Finance told The Express Tribune on Saturday.

They said the loan disbursements amounted to $9.5 billion, excluding $5 billion that Pakistan obtained from Saudi Arabia and the United Arab Emirates in cash deposits and did not book the amount as federal government obligation. In May alone, the government took $544 million in expensive foreign commercial loans from two Middle East and one European bank.

The sources said the government expected further disbursements in June due to the growing requirement for external-sector financing. In case, some of the planned borrowings do not materialise, the gross foreign exchange reserves held by the central bank would take a hit and may slip below $6.5 billion by June 30, said the sources.

Although the disbursement of loans in first 11 months of the current fiscal year exceeded the annual projection, project financing fell significantly behind the estimate of $3.4 billion.

Prime Minister Imran Khan has remained critical of the policy of bridging the external financing requirement by obtaining loans - a strategy that the previous Pakistan Muslim League-Nawaz (PML-N) government excessively used to remain afloat.

However, Imran’s own government is following in the footsteps of the PML-N and has not done much to improve exports and attract foreign direct investment - the two main non-debt creating sources. Exports in 11 months (July-May) of the current fiscal year stood at $21.3 billion, which were down 0.3% or $63 million as compared to the corresponding period of previous year. Adviser to Prime Minister on Commerce Abdul Razak Dawood had promised to increase exports to $27 billion by June this year - a target that the government is going to miss by at least $3.5 billion.

Had the government increased exports to $27 billion, the foreign loan requirement would have gone down by $3.5 billion in the first year of the PTI government.

PM Imran has also notified an 11-member Commission of Inquiry to determine if the increase in public debt between 2008 and 2018 was justified by the infrastructure development programme or misused by public office-holders of the last two governments of the Pakistan Peoples Party and PML-N.

Under its terms of reference, the commission will determine the significance of major infrastructure and public-sector development work carried out from 2008 to 2018 and whether it was in line with the increase in public debt from Rs6.7 trillion in 2008 to Rs30.8 trillion till September 2018.

The commission will also investigate why the public debt ceiling set under the Fiscal Responsibility and Debt Limitation Act was “busted” in the past.

Disbursements

Out of the $9.5 billion, China gave $6.7 billion in loans from July through May of the current fiscal year, which is equal to 70% of total disbursements. The Chinese loans include $2 billion of SAFE deposits, which Islamabad received in July 2018, but were shown on the books of the federal government for the first time in April.

Out of the $6.7 billion, China gave $2 billion in SAFE deposits and $2.53 billion in foreign commercial loans, also for cushioning the declining foreign exchange reserves. It also gave $628.4 million for the construction of two ongoing nuclear power plants.

China gave $1.5 billion in project financing in the past 11 months, mainly for CPEC projects. In May alone, it disbursed $129 million for project financing.

On the back of Chinese loans and fresh borrowing from three banks last month, commercial financing surged to $3.8 billion as of the end of May. Foreign commercial loans exceeded the annual estimate of $2 billion by 86%, said the finance-ministry sources. Ajman Bank PJSC disbursed another tranche of $121.5 million in May, taking its total loans to $271.5 million.

A consortium of Credit Suisse AG, UBL and ABL gave an additional $200 million last month, taking its total loans in the past 11 months to $495 million. Noor Bank released $222.5 million, taking its total disbursements to $242.5 million in 11 months. The lending by multilateral agencies amounted to $1.5 billion or 45% of the annual projected receipts from these multilateral agencies.

The country received $426 million from the ADB till the end of May, which was equal to only 30.4% of the annual estimate. The World Bank disbursed only $332.2 million, which was equal to 39% of the annual estimate. The Islamic Development Bank (IDB) disbursed an additional $75.7 million last month, which took its total loans for Pakistan to $654 million in 11 months. The IDB disbursed nearly two-thirds of the annual estimate.

Published in The Express Tribune, June 23^rd, 2019.

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