ISLAMABAD: Despite healthy remittances and export growth, Pakistan borrowed about $ 14.3 billion in foreign exchange reserves in the recently concluded fiscal year (fiscal 21), up 34 percent from a year earlier.
On Monday, the Economy Ministry said the government received $ 14.283 billion in foreign loans during the 2020/21 fiscal year, up from $ 10.66 billion in 2019-20, a 34% increase.
The total amount of foreign loans exceeded the target of $ 12.233 billion set in the 2020-2021 budget by 17%, indicating higher needs for foreign exchange to finance imports and previously issued loans. The bulk of $ 8.2 billion was obtained through nontraditional multilateral and bilateral lenders, although a targeted $ 1 billion loan from Saudi Arabia could not be realized within a year. This gap was filled by securing a Chinese loan for an equivalent amount that was not included in the original budget estimates.
Loans of $ 14.28 billion indicate higher foreign exchange requirements to finance imports, previously issued loans.
In addition, the government has secured $ 2.5 billion in international bonds against a planned budget of $ 1.5 billion. These include US $ 1 billion Eurobonds with a maturity of 10 years, US $ 500 million for 30 years, and US $ 1 billion for five-year bonds maturing in 2026. In addition, the government also received $ 4.7 billion in commercial loans from international banks against a targeted budget of $ 4.7 billion. $ 3.9 billion.
All of these commercial loans were for budget support and included $ 200 million each of four loans from Standard Chartered Bank London, $ 275 million from Suisse AG-UBL, $ 400 million from Ajman Bank, $ 825 million from Dubai Bank, 370 million dollars from Emirates NBD, 1 USD. billion (two loans of $ 500 million each) from the Industrial and Commercial Bank of China (ICBC) and $ 2 billion (two loans of $ 1 billion each) from the Chinese government and the China Development Bank.
The government did not meet its budgetary target for multilateral lending by nearly one billion dollars due to reduced payments by the Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), Islamic Development Bank, World Bank Group, etc. Together, these multilateral organizations have allocated $ 4.37. billion over 21 fiscal years with a budget estimate of $ 5.354 billion. These loans do not include the $ 500 million paid by the International Monetary Fund (IMF) in April 2021, which is separately recorded in the central bank.
Payments from traditional bilateral lenders were nearly on track at $ 453 million, against a budget estimate of $ 457 million.
Lower than planned payments by multilateral organizations – ADB, World Bank and AIIB – and, as a consequence, higher loans from commercial banks and bonds, meant that Pakistan had to accept significantly higher interest rates. For example, three Eurobonds were issued at an interest rate of 6-8.88%, compared to the cost of multilateral bonds of about 1-2%.
Ministry data showed that foreign borrowing has steadily increased over the past three fiscal years, from $ 10.59 billion in fiscal 19 to $ 10.662 billion in fiscal 20, and then reached $ 14.28 billion in fiscal 21, despite a favorable the current account situation, supported by significant remittances from overseas Pakistanis. The country received about $ 2.115 billion in external loans. Of these, a significant portion of $ 1.1 billion was received from commercial banks and $ 966 million from international organizations.
During FY20, the government provided $ 10.662 billion of total external inflows from multiple funding sources, representing 82% of the $ 12.958 billion annual budget estimate for that year. The gap between the fiscal target of $ 13 billion and actual inflows of $ 10.6 billion in FY20 is primarily due to the government’s failure to issue $ 3 billion in Eurobonds on international capital markets.
Published in Dawn, 20 Jul 2021