The government received $1.6 billion in gross foreign loans in July, 100% higher than the same month of previous year, amid heavy reliance on borrowing to build the foreign exchange reserves and repay the maturing debt.
In the first month of fiscal year 2021-22, the government received $1.6 billion in total external inflows from multiple financing sources, reported the Ministry of Economic Affairs on Tuesday.
In July 2020, Pakistan had secured $800 million worth of foreign loans, showing a 100% increase in foreign borrowing in the first month of current fiscal year.
The $1.6 billion worth of gross foreign loans are exclusive of the borrowing made through the highly expensive Naya Pakistan Certificates that is being secured at up to 7% interest rate in dollar terms for only one year.
The economic affairs ministry has released its monthly report four days after Finance Minister Shaukat Tarin-led Economic Advisory Council recommended a complete ban on signing fresh foreign loan contracts and cancelling the already signed deals where expenses were “wasteful”.
However, it has yet to be seen whether the finance minister will implement this recommendation, as his ministry has estimated $20 billion in fresh foreign borrowing in this fiscal year to strike a balance between external payments and receipts.
About three-fourths of the officially declared disbursement or $1.2 billion was made on account of budgetary support, which meant no asset was created using the loans and the money would be returned by obtaining more loans.
Similarly, another $176 million was taken to make payments for crude oil imports.
It got $1.04 billion in loan through Eurobonds at an interest rate that ranged between 5.875% and 8.5%.
The government had floated different tenor Eurobonds worth $1 billion. The bonds – the first major transaction in FY 2021-22 – have been arranged to build the country’s foreign exchange reserves.
An amount of $149 million was received in foreign commercial loans. The government borrowed $61 million from Ajman Bank and another $88 million from Standard Chartered Bank, London, according to the economic affairs ministry.
The government took $176 million in loan from the Islamic Development Bank for crude oil imports. The Asian Infrastructure Investment Bank released $28 million for project financing.
China after a long time disbursed $67.4 million on account of remaining financing for Multan-Sukkur motorway of the China-Pakistan Economic Corridor.
Amongst the multilateral development partners, mainly the Asian Development Bank (ADB) provided $31 million in loan last month.
Due to increasing reliance on foreign loans to manage the foreign exchange reserves and repay the loans, the cost of external debt servicing has gone up significantly.
The country paid $13.4 billion in interest and principal amount to the international creditors. The principal debt worth $11.2 billion was repaid but new foreign loans are increasing the cost of servicing.
The State Bank of Pakistan report revealed that during first three years of its tenure, the Pakistan Tehreek-e-Insaf (PTI) government added Rs14.9 trillion to the public debt, which was 60% more than the debt stock in June 2018.
The growing dependence on debt has exposed the country to many risks. The gross public debt increased to Rs39.9 trillion by June this year.
Japan’s Ambassador to Pakistan Matsuda Kuninori told The Express Tribune last month that due to Pakistan’s macroeconomic conditions his country was no more giving loans to Islamabad. He said that the economic conditions required foreign grants, not loans.
Japan on Tuesday also provided $31.4 million in grant for maternal and child healthcare facilities in Sindh and $2.9 million for the Human Resource Development Scholarship for 2021, according to a statement issued by the Japanese embassy.
Documents to this effect were signed and exchanged between Kuninori and Ministry of Economic Affairs Additional Secretary Zulfiqar Haider.
The government has not yet appointed a permanent secretary of economic affairs and the post has remained vacant for the last over two months.
The Japanese embassy said that a new maternal and child health centre would be established in Liaquat University of Medical & Health Sciences (LUMHS), Jamshoro, which is a public medical institution serving as the regional hub in Hyderabad district.
The maternal and child health centre will have the departments of obstetrics and paediatrics, including a labour room, an obstetrics ward, a neonatal intensive care unit, a maternal and fetal intensive care unit, a laboratory and outpatient consultation rooms. In addition, around 120 items of medical equipment including new-born incubators and ultrasonic diagnostic device are to be installed.
The project is scheduled to be completed by August 2024.
Published in The Express Tribune, September 1st, 2021.
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