In a bid to avoid a potential financial default, Pakistan will seek $12 billion in loans from international financial institutions to retire its previous debts and to try its luck with international and domestic bond markets to finance its mega projects.
Speaking at a news conference on Monday, Finance Minister Ishaq Dar said the fresh loans would be secured over the next three years. The loans would protect the government against international debt obligations for three years, he added.
However, he claimed that the fresh loans would not increase the overall debt stock.
According to the finance ministry, the debt-to-GDP ratio is already nearing 63.5%, far above the legally permissible limit of 60% of GDP. In the past five years, the country obtained loans from the International Monetary Fund (IMF), World Bank, Asian Development Bank and Islamic Development Bank.
Finance Minister Dar said Pakistan met all prior actions for a $6.6 billion IMF bailout programme while the last action has been met by half and the rest would be implemented by the State Bank of Pakistan very soon.
The IMF Executive Board will meet on Sept 4 to approve the loan, he added. “In the first year, the IMF will give $2.2 billion to Pakistan while Islamabad is scheduled to pay back over $3 billion,” he added.
Showing concerns over the low level of foreign exchange reserves, Dar said the government could not survive on the same reserves as after arranging funds for three years, it would need to find ways to increase the reserves.
Without disclosing the amount, Dar said Pakistan would launch exchangeable bonds in the international market to build reserves.
He said the government was also planning launching ‘infrastructure sovereign bonds’ to raise money for mega development projects. The government has already announced to enlist treasury bonds at the stock market.
The minister vowed that the government would observe financial restraint. In the first month of the new financial year, the government almost remained within the budgetary targets, Dar added.
PPP government budget deficit
Announcing the budget deficit for the fiscal year 2012-13, Dar said the deficit remained at Rs1.835 trillion or 8% of GDP. Against the total income of Rs2.982 trillion, all federal and provincial governments spent Rs4.816 trillion, showing a gap of Rs1.835 trillion.
On the eve of budget, the Pakistan Peoples Party government announced a budget deficit of Rs1.1 trillion or 4.7% of GDP. After taking over the finance ministry, Dar had claimed that the PPP government’s last year budget deficit would surge to Rs2.014 trillion or 8.8% of GDP.
Dar said less development expenditures by federal and provincial governments and Rs54 billion savings by the four provinces resulted in 8% deficit against revised estimates of 8.8%. He said the federal development spending remained at Rs344 billion against allocation of Rs360 billion while the combined development spending by four provinces remained at just Rs371 billion. The finance minister said the federal budget deficit remained at 8.2% of GDP or Rs1,890 against the annual target of 5% of GDP.
Published in The Express Tribune, August 27th, 2013.