Pakistan took record foreign loans of nearly $20 billion in the last fiscal year, up 27%, largely to repay the maturing foreign debt and finance imports, as the country faces a serious challenge to keep these financing pipelines open.
To be precise, the two governments of Imran Khan and Shehbaz Sharif received over $19.7 billion in foreign loans during fiscal year 2021-22 from multilateral, bilateral and overseas Pakistanis, according to details separately released by the Ministry of Economic Affairs and the State Bank of Pakistan (SBP).
The borrowing was $4.2 billion, or 27%, higher than the preceding year.
Data collected by the economic affairs ministry showed that it received $16.7 billion in foreign loans during the last fiscal year that ended on June 30. However, the ministry failed to achieve the loan disbursement targets, which are largely meant for project financing but require
extra efforts.
SBP’s data showed that it received nearly $2 billion in highly expensive foreign loans for the Naya Pakistan Certificates and another $1 billion from the International Monetary Fund (IMF) in the last fiscal year.
About 82% of the new gross foreign loans were aimed at bridging the budget deficit and artificially sustaining the foreign currency reserves. The rest of the 18% loans were taken for development projects ($2.5 billion) and funding a new fighter jet project.
The $2 billion loan under the Naya Pakistan Certificates was acquired at 7% interest rate in dollar terms while the return in local currency was up to 11%.
Out of the nearly $20 billion, loans of $15 billion had been taken during the time when Imran Khan was the prime minister. In total, Khan’s government took gross loans of $57 billion during its 43-month rule.
Until the economy is put on a sustainable path where the economic wheel is not greased by foreign lending, the policymakers seem do not have a choice but to keep borrowing.
Owing to a pause in inflows of major budgetary support loans, the country is struggling to keep its economy running. The central bank is monitoring almost every single transaction to maintain reserves at existing levels until the IMF revives its loan programme.
But due to the increasing reliance on loans to enhance the foreign currency reserves and finance the budget gap, the cost of debt servicing has gone up significantly.
During the last fiscal year, Pakistan received $4.9 billion in foreign commercial loans from banks, including $2.24 billion in June from a consortium of Chinese commercial banks.
Pakistan’s chances of getting major commercial loans and floating sovereign bonds have gone down after two credit rating agencies changed the country’s outlook to negative while its bonds are trading at a discount on fears of default.
Official statistics showed that bilateral lending to Pakistan for project financing remained at only $597 million, excluding the publicly guaranteed debt.
Pakistan also booked $1.53 billion worth of publicly guaranteed debt. It included $486 million for Karachi’s nuclear power plants, known as K2 and K3, and $1.03 billion for the fighter jet project, the Ministry of Economic Affairs stated.
Pakistan obtained loans worth $4.7 billion from multilateral creditors, which were $665 million less than the
budgeted amount.
Amongst the multilateral development partners, the Asian Development Bank (ADB) disbursed $1.6 billion during the last fiscal year.
The World Bank released $1.5 billion against the budgeted amount of $2.3 billion. The Islamic Development Bank (IDB) disbursed $1.3 billion for crude oil imports.
The government raised $2 billion by floating long-term bonds against the budgeted figure of $3.5 billion. It included $1 billion through the most expensive Sukuk in Pakistan’s history at nearly 8% interest rate.
Pakistan received $3 billion in Saudi cash deposits in the previous fiscal year, while the kingdom has not yet disbursed any sum to the new government despite its request for
a bailout.
The finance minister is currently in search of $4 billion financing to meet the $35.1 billion gross financing requirement and qualify for the IMF board meeting.
However, the acting SBP governor said on Sunday that there was no financing gap, a statement that was contrary to what the finance minister told the media last week.
Published in The Express Tribune, July 26th, 2022.
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