External loan burden

A new report on the official figures for foreign borrowing by the PTI government has sent the jaws of most analysts crashing down — $47.55 billion so far. The figure has been run up in just 43 months, meaning that the government is borrowing well over a billion dollars a month from abroad. In the process, Prime Minister Imran Khan and the ruling PTI have put more external debt on the shoulders of Pakistanis than any government in history, with little to show in terms of socioeconomic improvements for citizens.

While the government may try to blame its predecessors for forcing it to run to international lenders soon after taking charge, the fact that borrowing levels remain high and are actually rising without a corresponding increase in economic growth suggests that the government has not only failed to fix the country’s debt problem, but has made it significantly worse. In the first seven months of this year alone, the government has borrowed $12 billion, or 86% of the full-year target of $14 billion. Incidentally, total foreign borrowing for the previous fiscal year was $14.3 billion.

Also notable is the fact that the Ministry of Economic Affairs report does not list the $1 billion tranche of the IMF loan received in February, or over $1.2 billion in foreign currency-denominated Naya Pakistan Certificates, which technically amount to foreign financing. Adding these in would take total borrowing past the full-year target with four full months still remaining in the year.

A further complication comes from the fact that a significant amount of the new borrowing — $2.6 billion — is in the form of commercial loans, which have significantly higher interest rates and collateral conditions, coupled with shorter repayment periods. Interestingly, the full year target for commercial loans is $4.87 billion, meaning that the government may add over $2.2 billion in foreign loans before the year is up.

The government has also floated bonds with very high interest rates, which may be lucrative to investors, but again, will be difficult to repay if revenue growth continues at its current sluggish pace. Effectively managing the debt requires encouraging foreign investment and addressing the balance of payments deficit, which the government has failed to do.