The present government of Pakistan statistics showed that, took over $13 billion in foreign loans in the previous fiscal year — the second highest amount in history — to repay maturing external debt and cushion the shrinking foreign exchange reserves. According to facts and figures compiled by the Ministry of Economic Affairs, during FY2019-20 that closed on June 30, Pakistan received $13.2 billion worth of gross loans from bilateral and multilateral lenders counting IMF and commercial creditors. With the fresh borrowing, statistics showed that Pakistan has received a whopping $29.2 billion in foreign loans in the past two years, counting $26.2 billion by the government of Pakistan since August 2018. Total $19.2 billion out of the $29.2 billion, was used to repay the maturing external debt and the remaining balance was added to the external public and publicly guaranteed debt.
Since repayments have been made through contracting new foreign loans, it has increased the cost of debt servicing. The external debt servicing cost for FY2020-21, has been predicted at Rs315 billion despite over $300 million or about Rs 50 billion worth of temporary relief because of the G20 group’s moratorium on debt servicing.
The economic experts revealed that economic growth and development is a main goal of most developing countries; hence resources are mobilized from many sources counting external borrowing for investment into viable projects for growth acceleration. Sustainable economic growth is a predominant concern for all countries, mainly developing economies that frequently face burgeoning fiscal deficits chiefly driven through higher levels of debt service, chiefly external debt servicing and widening current account deficits. They also revealed that external debt constitutes a greater share of the public debt structure in developing countries. Reliance on external borrowing is not only rationalized on the grounds that excessive domestic borrowing can lead to financial instability and crowd out the private sector. It is also important to note that the developing countries in their early stages of development need to borrow externally due to insufficient domestic capital for investment. Furthermore, the economists also revealed that an economy, which experienced a fiscal deficit can finance the public deficit through borrowing domestically from a private sector by financial institutions or from other international sources. Because of lack of a strong private sector and well organized banking system the amount of money domestically available are very insignificant. In spite of this and other reasons, many poor countries borrow extensively from international lenders and other external sources.
But Pakistan during FY2018-19, borrowed $16 billion, counting balance of payments support from Gulf countries, and returned $9.1 billion worth of loans.
During fiscal year 2019-20, the gross foreign loans reached at $13.2 billion and repayments worth to slightly above $10 billion. Different sources recorded that Pakistan does not have any choice but to borrow to repay maturing loans and stabilise foreign currency reserves that had dipped below $10 billion in May after the outflow of hot foreign money of over $3 billion.
The withdrawal of hot foreign money, on the one hand, exposed the ill-planning of SBP and on the other highlighted the fragility of foreign exchange reserves that were built on the back of foreign borrowing. The Government of Pakistan borrowing from the commercial, bilateral and multilateral creditors exceeded the budgetary target because of the dip in SBP’s foreign currency reserves, low inflows under the Saudi oil facility and the decision not to float Eurobonds valuing at $3 billion. The bilateral creditors disbursed $629 million statistics showed, during the last fiscal year against the budgetary target of $480 million. The utilisation of Saudi oil facility remained low at almost $770 million as compared to the target of $3.2 billion. China gave $488 million in bilateral loan against earlier predict of $402 million. Multilateral creditors disbursed $5.54 billion in loans in the previous fiscal year. Furthermore, the Asian Development Bank (ADB) offered $2.8 billion, exceeding the yearly target of $1.7 billion. However, out of the $2.8 billion, the ADB’s budgetary support loans worth to $2.3 billion counting a billion dollars for the crisis response facility. The IMF disbursed loans of $2.84 billion, counting $1.4 billion in emergency financing in response to COVID-19. The Islamic Development Bank (IDB) disbursed $869 million under the oil credit facility against the estimate of $1.1 billion.
The statistics also showed that the World Bank released $1.32 billion against the yearly estimate of close to $1.2 billion. The Asian Infrastructure Investment Bank (AIIB) gave $508 million in loan. Different sources recorded that like the previous government, the present government-administration also relied on short-term foreign commercial loans. Against the budgetary estimate of $2 billion, it took $3.4 billion in foreign commercial loans. Commercial loans are considered expensive because of their short maturity period and relatively higher interest rates compared with the official bilateral and multilateral credit. On the other hand, China Development Bank ($1.7 billion) and Bank of China ($500 million) offered about two-thirds or $2.2 billion of total foreign commercial loans. Dubai Bank extended $564 million, Citibank $148 million, Standard Chartered $27 million, Ajman Bank $300 million and Suisse Bank AG $205 million. In last I would like to mention here, the government of Pakistan has also planned to seek $15 billion in gross foreign loans in this ongoing fiscal year aimed at servicing its maturing external public debt and building foreign currency reserves in the absence of non-debt creating inflows. Out of the estimated external borrowing of $15 billion, almost $10 billion, or two-thirds, would be utilized to return the maturing loans, excluding interest payments.