ISLAMABAD: The Pakistan Tehreek-e-Insaf (PTI) government has secured nearly $2 billion in foreign loans in first quarter of the current fiscal year, which is double the amount received in the previous year, but is still lower than estimates.
Foreign loan disbursements by multilateral and bilateral creditors and commercial banks came in at $1.93 billion from July through September of fiscal year 2019-20, according to statistics compiled by the Ministry of Economic Affairs.
The disbursements were higher by $995 million or 106% compared with loans of $930 million received in July-September of the previous fiscal year.
In addition to the loans of nearly $2 billion, Pakistan also received $150 million worth of foreign grants mainly from the United Kingdom, the United States and Japan. The UK gave $94 million in grant and was the largest donor of the country.
The $2 billion worth of loans were equal to 15.3% of the projected $13-billion borrowing that the PTI government targeted to secure in the current fiscal year in a bid to meet current account deficit and debt repayment requirements.
The current account deficit, which is on the decline, is projected to remain around $7 billion according to an estimate of the International Monetary Fund (IMF) and $8 billion as per forecast of the State Bank of Pakistan. In the first quarter, the deficit remained at $1.54 billion, down 64% over the previous year.
Still, the government is not in a comfortable position as it needs another $8.2 billion for public-sector external debt servicing whereas $4 billion will be required by the private sector and state-owned entities for their debt servicing.
In addition to that, the federal government will need another $4 billion to take the country’s gross foreign currency reserves to over $11 billion. The PTI government is following in the footsteps of the previous Pakistan Muslim League-Nawaz (PML-N) government by building the reserves through foreign loans, which is an unsustainable path.
In its first year in power, the PTI government had acquired $16 billion in external loans.
The IMF has anticipated that Pakistan will receive nearly $20 billion in official inflows in the current fiscal year, including $2.3 billion from the fund.
However, the low uptick in foreign inflows has raised liquidity management concerns in the central bank, which is also under the obligation not to increase domestic base money beyond the threshold agreed with the IMF.
IMF mission chief Ernesto Ramirez Rigo said on Monday that the IMF mission was looking forward to having a meaningful and productive review through a forward-looking approach with focus on the adjustments required till March, especially in the power sector, and funding from various bilateral and multilateral sources for boosting Pakistan’s foreign exchange reserves.
The borrowing of $2 billion in first quarter of the current fiscal year included $514.5 million in commercial loans, which was one-fourth of the annual estimate of $2 billion.
So far, the Asian Development Bank has provided budgetary support that took its lending to Pakistan in first three months to $543.3 million.
However, the World Bank has not yet approved a policy loan as the country’s gross official reserves remain below the threshold that the World Bank has set for approving budgetary support loans.
The ADB may approve $1 billion in emergency support loan this month, which will give a boost to the country’s foreign currency reserves besides bringing in some liquidity.
Disbursements by bilateral lenders stood at $274 million on the back of Chinese project loans of $261.8 million.
Loan disbursements by multilateral creditors kept growing and the country received $995 million from them, which were slightly above one-fourth of the annual estimate.
The Islamic Development Bank disbursed $304 million under the oil credit facility out of the total of $551 million. Last month, Pakistan signed another $362-million oil financing facility with the IDB.
The country also received $141.7 million out of the total projected $3.2 billion in Saudi Arabian short-term oil facility for the current fiscal year.
The World Bank has released $123 million so far against the annual estimate of nearly $1.2 billion.
The government has also made progress on its plan to raise $3 billion by floating Eurobond and Sukuk in the international market. It has completed the process of hiring financial advisers for floating the long-term security papers in the international debt market.
Pakistan will return $1 billion in Sukuk loan this month that the previous PML-N government had floated in 2014.
Published in The Express Tribune, November 2nd, 2019.