Pakistan’s foreign loan inflows during the current fiscal year have significantly dropped, reaching only $8 billion. This represents a 38% decline compared to the previous year and falls far below the annual budget estimates. The decrease in disbursements can be attributed to major international creditors pulling back due to delays in reaching a deal with the International Monetary Fund (IMF).
Data compiled by the Ministry of Economic Affairs reveals that from July to April 2023, foreign loan disbursements amounted to $8 billion, reflecting a $4.8 billion or 38% decrease compared to the same period last fiscal year. These disbursements have been insufficient to finance the maturing foreign debt, resulting in a significant dent in the country’s foreign exchange reserves, which currently stand at just $4.3 billion after a reported decrease of $72 million.
The primary cause of the low disbursements is the government’s failure to ensure the timely completion of the ninth review of the IMF programme. Consequently, the receipt of $8 billion represents only 35% of the annual budget estimate of $22.8 billion.
A World Bank report emphasises the critical importance of implementing macroeconomic and structural reforms agreed upon under the IMF programme, as well as securing much-needed external refinancing, to restore macroeconomic stability, confidence, and prevent a public debt crisis.
The report further highlights that Pakistan’s external financing needs are projected to average $28.9 billion per year, equivalent to 8% of GDP, during FY23-FY25. This includes IMF repayments, maturing Eurobonds, and repayments against Chinese commercial loans. However, the reserves position is expected to gradually improve.
In April, Pakistan received a meagre $348 million, which is less than the monthly external debt repayments. The Asian Development Bank (ADB) remains the largest creditor, extending nearly $2 billion, equivalent to 62% of the annual estimate. However, ADB disbursements have also slowed down in recent months.
Pakistan’s borrowing options have become limited due to downgraded outlooks by international credit rating agencies, negative debt ratings, and increased borrowing costs. This has virtually closed the door to floating Eurobonds. Against an annual estimate of $7.5 billion, Pakistan has only received $900 million in foreign commercial loans in the current fiscal year. Additionally, due to credit rating-related issues, the government had to include $1.3 billion of Chinese commercial bank debt on its domestic debt balance sheet.
These factors have hindered Pakistan’s ability to raise new loans, leaving the external financing gap unfilled and causing delays in finalising the ninth review. The planned $2 billion sovereign bond-based borrowing did not materialise due to poor credit ratings and expected high interest costs.
The government also expected to receive $3 billion from the IMF, later increased to $3.5 billion, but has only received $1.2 billion so far. The remaining amount may lapse with the programme’s expiration in June.
Furthermore, loans of $1.6 billion under the Naya Pakistan Certificates have fallen short, with only $677 million received thus far.
The government estimated inflows of $7.7 billion in loans from multilateral agencies for the current fiscal year, but only $4 billion has been disbursed in the first ten months.
Published in The Express Tribune, May 19th, 2023.
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