Pakistan receives $2.7b in foreign loans

External inflows increase one-fourth compared to previous year

ISLAMABAD:

Pakistan received over $2.7 billion in gross foreign loans in the first quarter of current fiscal year, up about one-fourth amid growing concern about the impact of high indebtedness on national security.

During July-September of fiscal year 2020-21, the government received $2.734 billion in total external inflows from multiple financing sources, said the Ministry of Economic Affairs on Friday.

However, the ministry has failed to publish an annual report on foreign loans and commitments for the last fiscal year, raising transparency concerns.

The $2.7 billion borrowing was 22% of the annual budget estimate of $12.2 billion for fiscal year 2020-21, it added.

In the same period of last fiscal year, Pakistan had received $2.2 billion, indicating a 25.4% increase in external borrowing in the first quarter of current fiscal year.

Out of the $2.7 billion, project financing - the money received to create assets - amounted to only $317 million or 11.6% of the borrowing, according to the ministry.

The rest of the amount was on account of budget financing and balance of payments support, which the country would be paying back after taking new loans as no revenue-generating assets were created by using these loans.

A recent report of the Institute of Policy Reforms (IPR) said the growing burden of public debt could become a national security issue. It said during the past two years, the public debt increased by Rs14.7 trillion due to weak fiscal management and inability to bring reforms to the energy sector.

The economic affairs ministry said $1.3 billion or 46% of the loans were obtained for budgetary support to restructure Pakistan’s economy, $149 million as foreign commercial borrowing to pay for maturing international Sukuk and repay other foreign commercial loans. Chinese loans of $1 billion were also obtained for balance of payments support.

Bilateral and multilateral development partners disbursed $1.6 billion in foreign economic assistance against the budgetary allocation of $5.8 billion for the current fiscal year at concessionary terms with a longer maturity, according to the ministry.

Amongst the multilateral development partners, the Asian Development Bank (ADB) provided $637 million and the World Bank disbursed $592 million against budgetary allocation of $2.3 billion. From bilateral sources, France gave $25.3 million in loan, the US $52.3 million and the UK $13.4 million.

In September, the ADB provided $290 million in budgetary support and $67 million for the Jamshoro hydroelectric power project. Saudi Arabia did not disburse any amount against the annual oil facility of $3.2 billion, showed official statistics.

The facility has remained non-operational since May 2020. The economic affairs ministry said during the first two months, total servicing of external public debt stood at $798 million against the annual repayment estimate of $10.4 billion for the current fiscal year.

This included $137 million in interest payments. In 2020-21, the government settled $204 million worth of foreign commercial loans. Similarly, the government repaid $493 million to multilateral and $102 million to bilateral development partners.

Recently, the Ministry of Finance defended the increase in public debt. It said the increase in external debt and liabilities by $17 billion, reported by the State Bank of Pakistan (SBP), needed to be properly interpreted for a better understanding.

Out of the total increase of $17.6 billion in external debt and liabilities from June 2018 to June 2020, an amount of $7.8 billion or 44% of the increase was borrowed by the government for financing its fiscal deficit.

This $7.8 billion was the actual borrowing of the present government during its first two years, it added. Another amount of $4.8 billion (27% of the increase) was on account of SBP’s foreign exchange liabilities.

It should not be interpreted as the government’s debt because it was offset by cash balances and liquid assets of the SBP, said the ministry.