Foreign loan inflows slow down

Pakistan gets only one-fourth of budget estimate due to delay in IMF’s 9th review

Shahbaz Rana January 28, 2023


Pakistan received only $5.6 billion in foreign loans during the first half of current fiscal year, equal to about one-fourth of the annual budget estimate, due to its failure to take timely decisions about reviving the International Monetary Fund (IMF) loan programme.

Data compiled by the Ministry of Economic Affairs showed that foreign loan disbursements from July through December 2022 stood at a mere $5.6 billion.

The disbursements were not enough to finance the maturing foreign debt, making a severe dent in the foreign exchange reserves held by the central bank.

The key reason for the low disbursements was the government’s failure to ensure the timely completion of ninth review of the IMF programme. As a consequence, the receipt of $5.6 billion was equal to only one-fourth of the annual budget estimate of $22.8 billion.

The IMF on Thursday announced that it would send its mission to Pakistan for talks but the set of conditions listed in its statement suggested that the government would have to go an extra mile to conclude negotiations by February 9.

Pakistan received just $532 million in loans in December, which were not sufficient for making major repayments.

In the past seven days, the country paid $828 million to Chinese financial institutions. As a result, the official foreign exchange reserves slipped to $3.1 billion.

About 44% of the loans received in December came from the Asian Development Bank (ADB), which gave $231 million. So far, the ADB has remained the largest lender with disbursement of $1.9 billion, which is one-third of the annual estimate.

The IMF has assessed Pakistan’s gross financing needs for FY23 at $34 billion and another $6 billion for increasing the foreign currency reserves’ cushion, which takes total borrowing to $40 billion. However, the government has budgeted only $22.8 billion in foreign loans for fiscal year 2022-23.

Pakistan’s borrowing options have remained limited after the international credit rating agencies downgraded its outlook to negative and debt rating to junk status. This has increased the country’s borrowing cost in addition to virtually closing the doors to floating Eurobonds.

Against the annual estimate of $7.5 billion, Pakistan has only received $200 million in foreign commercial loans in the current fiscal year, according to sources. The government now expects it will receive $6.3 billion in commercial loans, which appears to be on the higher end.

Pakistan had budgeted $2 billion in sovereign bond-based borrowing, but the plan did not materialise due to the poor credit rating and expected high interest cost.

The government had also expected receipt of $3 billion from the IMF, which was later increased to $4 billion.

It had also hoped for getting loans of $1.6 billion under the most expensive Naya Pakistan Certificates. So far, $190 million, or 11% of the annual estimate, has been received.

The government this week revised the interest rates on these debt instruments and also lowered the investment limit to $1,000 in desperation to get loans from wherever possible.

For the current fiscal year, the government has estimated inflows of $7.7 billion in loans from multilateral agencies. In six months, $3.3 billion, or 44%, has been disbursed.

The disbursements by the multilateral agencies were better than the half-year estimate, thanks to the ADB. In the first six months of FY23, the World Bank disbursed about $691 million, 26% of the annual estimate.

A World Bank spokesperson told The Express Tribune this month that the bank board may consider RISE-II loan of $450 million in the next fiscal year. Bank website showed that another loan of $600 million had been delayed to the next fiscal year.

Besides, the Islamic Development Bank (IDB) gave $176 million against the annual estimate of over $1.2 billion.

At the Geneva conference, the IDB announced $4.2 billion in loans but, according to sources, $3.6 billion was part of its regular oil financing operations that too was calculated thrice.

Saudi Arabia disbursed $600 million in an oil credit facility against the annual estimate of $800 million.

Among the bilateral creditors, China gave $55 million, France $8.6 million, Germany $4.5 million and South Korea $19 million.

Published in The Express Tribune, January 28th, 2023.

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