Pakistan secures $5.688b loans

ISLAMABAD: While officially confirming to have received $1 billion from China as safe deposits after paying back to Saudi Arabia, Pakistan has received a total $5.688 billion external loans during the first six months (July-Dec) of the current fiscal year 2020-21.

However, this time Islamabad managed lesser amount of $5.915 billion than the same period of the last fiscal. It indicates that Pakistan received $227 million less in the first six months of the current fiscal compared to the same period of the last financial year.

According to official figures of the Economic Affairs Division (EAD), during July-December of fiscal year 2020-21, the government received $5,688 million total external inflows from multiple financing sources, which are 46 percent of annual budget estimates of $12,233 million for the entire fiscal year 2020-21. In the corresponding period of the fiscal year 2019-20, the external inflows were $5,915 million which were also around (46 pc) of the annual budgeted amount of $12,958 million.

The total receipt of $5,688 million constitutes $1,634 million or 29pc as program, budgetary support assistance to restructure Pakistan’s economy; $2,054 million (36pc) as foreign commercial borrowing to repay maturing foreign commercial loans and $754 million (13pc) as project assistance to finance development projects activities for improving the socio-economic development of the country and for asset creation, $246 million (13pc) as commodity financing while $1,000 million (18pc) received as safe deposits from China.

Disbursement from multilateral and bilateral development partners also maintained a strong trend and stands at $2,633 million during the review period against the budgetary allocation of $5,811 million for fiscal 2020-21 on concessional terms with longer maturity. These healthy inflows have helped improve foreign exchange reserves and exchange rate stability.

Amongst the multilateral development partners, mainly the Asian Development Bank provided $1,120 million, World Bank disbursed $744 million against the budgetary allocation of $2,257 million. The bilateral sources, France, USA and China, provided $34.3 million, $70.5 million & $95.4 million respectively.

The increased level of external inflows from multilateral and bilateral development partners is indicative of their confidence in development priorities and policies of the government, including implementation of reforms in the priority areas of fiscal and debt management, energy sector and ease of doing business.

The strong official inflows during the first six-months of current fiscal year helped the government to discharge its external public debt obligation of $2,924 million against the annual repayment estimates of $10,363 million for the entire fiscal year. Of which, $2,455 million (84% of total external public debt servicing) was repaid as principal and $470 million (16%) as interest on the outstanding stock of external public debt.

During July-November 2020-21, the government settled $1,546 million worth of foreign commercial loans. Similarly, the government has also repaid $1,155 million to multilateral and $102 million to bilateral development partners. Considering foreign exchange constraints, financing of development projects and repayments of these huge external public debts compel the incumbent government to further borrow from multiple sources.

Net transfer is one of the important concepts in debt management. It is estimated by taking difference between receipt and repayment of external public loans. Positive balance shows increase in external debt stock while negative balance shows reduction in external debt stock. Implication for positive or negative balance varies from country to country and depends upon the country’s macroeconomic condition.

If a country is in balance of payments crisis and faces shortage of foreign exchange, positive balance helps country to manage its crisis up to some extent and strengthens foreign exchange reserves. Further, the net transfers is a flow concept whereas external debt is a stock concept, therefore, these two are not directly comparable. However, net transfers give us a fair idea of how external public debt will change for the period July-November, 2020-21, net transfers to the government were $1,946 million.

Positive net transfers came mainly due to higher inflows from Multilateral Development Partners and due to $1,000 million in respect of time safe deposit from China. Interestingly, the stock of external loans obtained on market based instruments increased merely by $187 million and the share of concessional external loans with longer maturity increased by $760 million, the report concluded.