$16b to be borrowed to retire debts in FY22

Pakistan expects to get $3.1b from IMF in next fiscal year

ISLAMABAD:

The government has planned to take nearly $16 billion gross foreign loans in next fiscal year to meet requirements of maturing external public debt and finance the budget deficit.

The estimated $15.7 billion borrowings in fiscal year 2021-22 are higher by nearly 10% over this year's revised estimates of foreign economic assistance, said sources in the Ministry of Finance. The final figures may slightly change in light of ongoing discussions with the International Monetary Fund (IMF), they added.

Nearly two-third of the foreign loans will be taken to return the maturing external public debt, excluding interest payments, said the sources.

The Ministry of Finance has estimated the gross receipts of $15.7 billion from bilateral and multilateral lenders, commercial banks, issuance of Eurobonds and the IMF for fiscal year 2021-22, according to the sources. The new plan consists of floating $2 billion Eurobonds, contracting a record $4.9 billion foreign commercial loans and about $3.1 billion lending by the IMF, said the sources.

The estimated roughly $16 billion borrowings will be the highest-ever taken by the country in a single year, highlighting challenges that every government faced due to the deepening debt trap.

Because of inability to enhance non-debt creating inflows, Pakistan's now $16 billion gross official foreign currency reserves held by the State Bank of Pakistan (SBP) are largely built through borrowings, which is also a reason for constant surge in foreign loans. This has weakened the country's debt bearing capacity.

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For the next fiscal year, the federal budget deficit is also estimated over Rs4 trillion - the highest ever - and the government plans to bridge some portion of this yawning gap through foreign loans.

For fiscal year 2021-22, the IMF has projected SBP's reserves at $17.8 billion in its April report, which will again be impossible without borrowings due to no major increase in exports and foreign direct investment in the next fiscal year.

During the outgoing fiscal year, the government has estimated receiving $14.3 billion foreign loans, which were so far highest in the Pakistan Tehreek-e-Insaf's (PTI) tenure. Cumulatively, the PTI government has taken $38.7 billion during its three-year tenure. The central bank data showed that the PTI government has added $15 billion in external public debt from July 2018 through March 2021 and the rest of loans were utilised to repay the maturing loans. There has been a 20% increase in external public debt in three years, according to the SBP.

The government is currently in negotiations with the IMF for the next loan tranche of $1 billion that will be disbursed at the beginning of new fiscal year, subject to an agreement between the two sides.

Pakistan expects to receive $3.1 billion from the IMF in the next fiscal year, subject to successful completion of quarterly reviews. This year the IMF gave $500 million loan.

The materialisation of about $16 billion external loans will also depend upon the continuation of the IMF programme, as the government has included loans from the IMF and budgetary support from the World Bank and the Asian Development Bank (ADB).

The government has planned to take highest-ever foreign commercial loan of $4.9 billion, which will essentially be rollovers of the existing commercial loans. For this fiscal year, the revised estimates of foreign commercial loans are $4.7 billion, also highest so far. The commercial loans are expensive and of short tenure.

The bilateral inflows are estimated at just $312 million due to completion of major ongoing projects of the China-Pakistan Economic Corridor (CPEC) and shifting focus of the western powers. The loan from China is estimated at only $67 million in the next fiscal year - down by 72% over this year's revised estimates.

Pakistan has estimated $5.4 billion loans from the multilateral creditors in next fiscal year. The ADB is expected to lend $1.6 billion, slightly less than this fiscal year. The World Bank may extend $2.3 billion in new loans, said the sources.

The Islamic Development Bank is expected to extend $1 billion in fresh loans and $357 million receipts are estimated from Asian Infrastructure Investment Bank (AIIB), said the sources.

The government also has a plan to float $2 billion Eurobonds in the next fiscal year after it sold $2.5 billion Eurobonds this fiscal year. Pakistan has not estimated any new short-term loan by Saudi Arabia. It has so far not shown any receipt on account of Chinese safe deposits, said the sources.