The government’s foreign borrowings jumped over 35% to $10 billion during first ten months of this fiscal year and 88% of the loans were meant for budget and foreign exchange reserves support, which has further weakened the debt bearing capacity.
The foreign lenders disbursed $10 billion in loans during the July-April period of the current fiscal year, the Ministry of Economic Affairs reported on Tuesday. The lending was higher by over 35% or $2.6 billion during the same period of the last fiscal year, showed the official statistics.
In April alone, the government took $2.7 billion in foreign loans on back of $2.5 billion Eurobonds transactions, which were conducted at relatively expensive rates.
“The government has repaid $9.5 billion in this fiscal year, which had been borrowed by the PML-N government,” said Federal Minister for Information Fawad Chaudhry. He said that the Pakistan Muslim League-Nawaz (PML-N) used most of the loans for non-productive purpose.
The information minister said that the Pakistan Tehreek-e-Insaf (PTI) government has slowed down the process of borrowing and now the government was borrowing much less money and the economic management has enabled us to bring sustainable policies.
However, Pakistan’s reliance on expensive commercial loans and long-term capital market borrowings has also increased due to a decision to maintain the foreign exchange reserves through borrowing.
The economic affairs ministry data showed that the non-projected related borrowings surged to $8.8 billion in 10 months, which were equal to 88% of the total loans. The government will have to take new loans to payback these loans, which are consumed in budget financing and balance of payments support.
During the past over two-and-a-half years, there had been no improvement in foreign direct investment and exports marginally picked up during this period. The foreign remittances increased in double digits, which helped maintain the foreign exchange reserves at current levels.
The project loans stood at only $1.2 billion, which were far less than the same period of the last fiscal year. Bilateral project financing has almost dried up due to the maturity of China-funded schemes and reluctance of other bilateral creditors to extend loans due to their foreign policy priorities. Pakistan’s reliance on foreign commercial loans has increased by 56% and it borrowed $3.4 billion under this year during the first 10 months of FY21 as compared to the same period of last year.
The $10 billion borrowings were necessitated by heavy repayment obligations inherited on account of debt accumulated by previous government to finance historic high current account deficits, said Federal Minister for Economic Affairs Omar Ayub Khan. He added that the net addition to external debt was one of the lowest in many years.
The State Bank of Pakistan (SBP) data showed that the government repaid $7.5 billion public debt during the first nine months of the fiscal year. This suggested that about $4.5 billion have been added in the debt stock, as total borrowings in 10 months stood at $12 billion after including the Chinese trade facility and fresh IMF lending.
In June 2018, Pakistan’s external debt and liabilities amounted to $95.2 billion that surged to $116.3 billion by March this year, according to the SBP. There was an addition of $21.1 billion in total external debt and liabilities during the tenure of the PTI government. The external public debt including of the PSEs also increased by another $18 billion to $96.6 billion from July 2018 to March 2021, according to the SBP data.
Foreign debt becomes a burden when it is used for balance of payments support. In the last two years, loans for budget and balance of payments support have reached unsustainable levels, according to a report by the Institute of Policy Reforms.
Amongst the multilateral development partners, the ADB provided $1.25 billion during first 10 months - down by 44.5% as compared to the same period of the last fiscal year.
The World Bank disbursed $961 million loans during this fiscal year, as against $505 million in the same period of the last fiscal year.
Pakistan expects some major programme loans from the World Bank in coming months, which may reverse the increasing reliance on commercial banks. However, the World Bank future lending is linked with implementation of harsh conditions.
The Islamic Development Bank disbursed $527 million in 10 months. The PML-N government had taken foreign loans of $42.4 billion in five years including $27 billion or 64% for budget support. The last government had returned around $24 billion worth of foreign loans in five years and rest was added in the debt stock.
Published in The Express Tribune, May 26th, 2021.