KARACHI: Pakistan borrowed over $ 12 billion in 11 months of the current fiscal year (11MFY21), up 63% over the same period in FY20, reflecting the growing demand for foreign exchange despite record remittances and export growth.
During the July-May 21st fiscal year, the government borrowed $ 12.13 billion, up from $ 7.44 billion in the same period in the previous fiscal year, an increase of $ 4.68 billion, or 62.8%. In contrast to the previous year, the government borrowed significant amounts over 21 fiscal years to maintain its improved foreign exchange reserves, according to monthly data released by the Ministry of Economy for May.
However, about half of the loans were borrowed in the form of commercial loans, which means that the interest will be much higher than the loans received from the Asian Development Bank (ADB), the World Bank and the Islamic Development Bank (IsDB).
About half of the loans were commercial loans with a higher interest rate.
This higher loan was made despite a current account surplus that was not expected until the start of a new 21 fiscal year. During 11MFY21, the current account is still positive at $ 153 million, which provided a great support for the external account of the economy, especially in the face of a 29% increase in remittances.
Borrowings from multilateral sources amounted to $ 3.37 billion, while the total amount of loans from commercial banks amounted to $ 3.61 billion. Commercial borrowing is expensive and debt service will increase in the coming years. During the first three quarters of fiscal 21, the government paid out $ 10.63 billion in debt service, while the expected amount at the end of the fiscal year could be about $ 14 billion.
Among multilateral sources, ADB provided $ 1.28 billion, the International Development Association (IDA) provided $ 850 million, and the IDB provided $ 508 million in short-term financing.
Pakistan received $ 417 million from bilateral sources. The total amount of multilateral and bilateral loans reached $ 3.79 billion during 11MFY21.
Taking into account loans from commercial banks in the amount of $ 3.61 billion and Eurobonds for $ 2.5 billion, the total volume of government grants and loans reached $ 10.89 billion. The addition of $ 1.24 billion in government-guaranteed debt resulted in a total borrowing of $ 12.13 billion. The total amount of grants was $ 231 million.
The data shows that the inflow of loans in May was about $ 699.7 million. However, the government remained close to the target set in the budget for grants and loans.
The budget shows an inflow of grants for the 21st fiscal year of $ 275.8 million, while the inflow for the 11 months of the 21st fiscal year reached $ 231.6 million. Likewise, the budget for loans was $ 11.96 billion, up from $ 11.90 billion during this period.
The government faced a difficult situation despite a current account surplus of $ 153 million in 11MFY21. The current account has been in deficit for the past six months. The May deficit was $ 632 million, indicating that June, the final month of this fiscal year, could see an even higher deficit. Most payments are completed at the end of the fiscal year, which may cause a larger outflow of funds out of the country.
Published in Dawn, June 27, 2021