Foreign loans rise to $14.5 billion

ISLAMABAD:

The government received $14.5 billion in external loans during the first eight months of the current fiscal year, 77% more than in the same period of the previous year, but the funds remained insufficient to prevent official foreign exchange reserves from continuously falling.

Total loans received by Prime Minister Imran Khan’s government from July to February of the current fiscal year amounted to $14.5 billion, according to data from the Ministry of Economic Affairs and the State Bank of Pakistan (SBP).

These include the disbursement of $13 billion by international creditors and almost $1.5 billion by Pakistanis abroad.

Net disbursements in February were $1.32 billion, including $1 billion released by the International Monetary Fund (IMF) after completing the sixth review of Pakistan’s economy.

The Ministry of Economic Affairs reported on Friday that it recorded gross foreign loans of $12 billion in July-February of the 2021-22 fiscal year.

The amount is equal to 100% of its annual estimate published in budget documents, indicating that external borrowing in the fourth year of the Pakistan Tehreek-e-Insaf (PTI) government may remain one of the highest in history. country history.

SBP data showed that it also received almost $1.5 billion in very expensive foreign loans under Naya Pakistan Certificates, a new lending instrument introduced by the PTI government to obtain more foreign loans.

Some 89% of gross new foreign loans were earmarked for reducing the budget deficit and supporting foreign exchange reserves.

However, reserves held by the central bank fell below $15 billion at the end of last week, despite massive borrowing from almost every available source.

READ Foreign loans soar to $10.4 billion in July-December

The US$1.5 billion loan under the Naya Pakistan certificates was purchased at an interest rate of 7% in dollar terms, while the yield in local currency was up to 11%.

As a result, accumulated gross foreign loans guaranteed in the first eight months of the current fiscal year rose to a record $14.5 billion, $6.3 billion (or 77%) more than in the same period of the previous fiscal year, official statistics show.

The country is sinking deeper into a debt trap and the government is now looking for new debt instruments after existing debt products seemed insufficient to meet rising borrowing requirements.

Due to the increasing reliance on borrowing to increase foreign exchange reserves and finance the budget deficit, the cost of servicing the debt has risen sharply.

This month, the cabinet’s Economic Coordination Committee (ECC) approved a supplemental grant of Rs 135 billion to cover just the cost of the debt accumulated through the Pakistan Naya Certificates.

An amount of $2.6 billion in foreign business loans was received from banks in the current fiscal year.

The government borrowed $1.1 billion from Dubai Bank. Another loan of $487 million was acquired from Standard Chartered Bank, London, according to the ministry of economic affairs. Financing of $343 million was obtained from Credit Suisse AG.

The average maturity of external debt deteriorated from the seven-year level last year to six years and eight months at the end of June 2021 due to the government’s decision to take short-term loans, including $3 billion from Saudi Arabia. .

The share of external commercial loans has already increased from 11% to 13% in external public debt as of June last year.

Official statistics showed that bilateral loans to Pakistan for project financing stood at just $123 million, excluding publicly guaranteed debt. This included $100 million in project loans from China.

The Ministry of Economic Affairs also set aside $832 million in publicly guaranteed debt, which China disbursed for the Karachi nuclear power plants, including disbursing $531 million last month.

Pakistan also secured loans worth around $3.4 billion from multilateral creditors. Among multilateral development partners, the Asian Development Bank (ADB) disbursed $1.1 billion during the July-February period.

The World Bank released $1 billion in the eight months under review, while the Islamic Development Bank (IDB) disbursed $1.2 billion for crude oil imports.

The government also raised $2 billion through long-term floating bonds, including $1 billion through the most expensive Sukuk in Pakistan’s history at a yield of almost 8%.

Published in The Express Tribune, March 26the2022.

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