Lifeline: Flow of foreign loans slows down

Country receives only 7.5% of annual estimate in first two months of FY15

ISLAMABAD:

Amid massive annual financing requirements of $10.8 billion, Pakistan has received only $551 million in foreign economic assistance in the first two months of the current fiscal year, increasing the difficulties that economic managers are facing in raising foreign loans.

In July and August of fiscal year 2014-15, Pakistan got $551.4 million in foreign economic assistance, which is just 7.5% of the budgeted annual estimate of $7.4 billion, according to the provisional figures compiled by the Economic Affairs Division (EAD).

On the back of initial steps taken by the PML-N government in its first few months in power, the country received a massive influx of foreign loans worth $6.7 billion in the last fiscal year. However, it is again facing the challenge of keeping the international lenders engaged after it could not conclude the fourth review of a three-year International Monetary Fund (IMF) programme. The fourth review was about gauging economic performance for the period April-June 2014.

From the $551.4 million, China disbursed the maximum amount of $295.2 million in the first two months. Pakistan is expected to receive $1.5 billion in fresh loans from China this year.

The Islamic Development Bank was the other main lender that gave $144 million including an expensive short-term loan of $133.7 million.

The Asian Development Bank (ADB) disbursed $80.8 million or 7.4% of its annual estimated assistance of $1.1 billion. Against the annual estimate of $1.9 billion, the disbursement from the World Bank (WB) was negligible, standing at $15.3 million only, according to the EAD documents.

According to EAD sources, due to the delay in conclusion of the fourth IMF review, the upcoming loan tranches from the WB and ADB may also get delayed, which could create serious problems for the government to manage its external accounts.

The government has planned to issue $1 billion worth of sukuk (Islamic bonds) and expects to complete the transaction by the end of this month, according to Finance Minister Ishaq Dar.

Disbursements from other donors, particularly the United Kingdom and the United States, were negligible. The UK did not provide any grant against the annual estimate of $245 million. According to the documents, the US gave only $1.2 million against the annual estimate of $357.5 million.

As opposed to the government’s annual budgetary estimates of $7.4 billion, the IMF has assessed Pakistan’s gross financing needs for the current fiscal year at $10.8 billion including the additional requirements to build the foreign currency reserves.

For the year, the IMF has asked Pakistan to raise its net reserves level to $13.3 billion.

However, keeping in view the assistance provided so far, the government seems to be missing the target completely. According to the IMF’s projections given in the third review, Pakistan should have raised its net reserves to $10.3 billion by the end of first quarter in September.

But, according to the latest figures released by the State Bank of Pakistan (SBP), the net reserves held by the SBP stood at $8.86 billion by October 3, falling short of the target by about $1.5 billion.

Owing to the country’s inability to complete the fourth review of the programme, the IMF has suggested to the government’s economic managers to club the fourth review with the fifth assessment. The fifth review will cover the period from July to September. Finance Minister Ishaq Dar has already turned down the suggestion.

Knowing that it will further complicate the country’s case due to the difficulties faced by it in meeting the conditions about privatisation, power tariff increase, reducing borrowings from the central bank and increasing foreign currency reserves, Dar did not accept the proposal, according to sources in the ministry.

Published in The Express Tribune, October 12^th, 2014.

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