Govt added $10.814bln to public debt

ISLAMABAD: The PTI government, while side stepping the required due diligence in securing new liabilities has added $10.814 billion foreign loans in public debt during its first year in power, which threatens to undermine its deficit-cutting ambitions and commitment to pin point reasons for sharp increase in overall debt.

The country, which has borrowed heavily from abroad since it drew up an economic reform programme under Prime Minister Imran Khan, faces a tough foreign repayments schedule over the next two years as well as a rising bill from relentlessly more expensive oil imports.

Analysts said the country’s reliance on expansive foreign funding continued to rise, while Islamabad’s ability to generate cheap funding in shape of getting disbursements from multilateral creditors shrunk significantly.

The Asian Development Bank (ADB) had disbursed $541.17 million in July-June period of 2018-19 against $1.508 billion obtained in the same period of last financial year, indicating that the ADB’s loan disbursement decreased by $967 million.

The World Bank (WB) disbursed $652.75 million during the fiscal year 2018-19 against $1.731 billion provided to Islamabad through IDA and IBRD facility in the financial year 2017-18.

There were many reasons for dismal disbursements from multilateral creditors, such as suspension of programme/budgetary loans (now resumed after IMF loan) and capacity constraints to execute projects in timely manner.

The reliance on commercial banks continued during the rule of PTI-led regime, as without passing through due diligence process the Ministry of Finance borrowed over $4 billion through foreign commercial banks on short-term basis.

The short-term commercial borrowing was usually obtained at higher rates and without undertaking any due diligence in shape of seeking approval of the cabinet or the Economic Coordination Committee (ECC). The finance ministry moved an official file and sought approval within the ministry, and accepted offered rates of commercial banks through negotiations.

The official data of Economic Affairs Division (EAD) showed that Chinese deposits of $2 billion were also made part of the total disbursements of loans and grants obtained during the fiscal year 2018-19.

The government has obtained $2.111 billion through multilateral creditors such as World Bank, Asian Development Bank, IDB and others in fiscal year 2018-19 against $3.87 billion in the same period of last financial year 2017-18.

China has become the largest bilateral creditor in the last fiscal year, as Beijing provided $2.186 billion in 2018-19. China also provided $2 billion as safe deposits.

The government did not incorporate deposits from Saudi Arabia to the tune of $3 billion, UAE $1 billion and another $2 billion from China as part of official record maintained by EAD.

“It’s a worrying indicator because our reliance on short-term commercial borrowing is increasing, which is expensive, while our capacity to draw foreign inflows from cheap mode of financing is decreasing with the passage of time,” a source said on Wednesday.