There is a dangerous spike in external borrowing in recent months. Latest data from the Economic Affairs Division (EAD) reveals that reliance on external borrowing was to the tune of $ 3.8 billion during September-December 2017. External debt and liabilities rose from $83.092 billion by end June 2017 to $85.087 billion by end-September 2017 and to $88.891 billion by end December 2017. Around $2 billion external borrowing was incurred during the first quarter of the current year and over $5 billion during the first six months of the current fiscal year.
The PML-N government's reliance on external borrowing, particularly borrowing from foreign banks at high rates of return with a small amortization period, is likely to increase during the remaining three months and one week and a half of its tenure to meet repayments of over $3 billion till the end of the current fiscal year. This was publicly acknowledged by Minister of State for Finance Rana Muhammad Afzal a few weeks ago. It is relevant to mention here that after Prime Minister Abbasi took over as the country's chief executive, the government borrowed $1.163 billion from foreign commercial banks (AugustJanuary 2017-18) and an additional $2.5 billion was raised through issuing Eurobonds and Sukuk, debt equity, in the international capital market. Data from EAD further shows that Asian Development Bank (ADB) disbursed $427.50 million, China $504 million, IDB(S-Term) $619.50 million, International Bank for Reconstruction and Development (IBRD) $86.66 million, International Development Association (IDA) $84.81 million, UK $105.51million, Japan $67.7 million and USA $21.07 million.
The government has signed short-term commercial loan agreements of $1.417 billion in the current fiscal year 2017-18 so far with different foreign banks of which $1.163 billion has been disbursed.
The government signed an agreement for procuring $200 million commercial loans from Standard Chartered Bank (SCB)-London on October 31, 2017 and $141.97 million had been disbursed by December. The government procured $500 million commercial loans from Industrial and Commercial Bank of China Limited (ICBC) in October. Further $50 million was procured from the Credit Suisse-led consortium of banks, bringing the total to $255 million from the consortium. The consortium consists of Credit Suisse AG, United Bank Limited and Allied Bank Limited.
The budgeted foreign assistance was projected at $8.094 billion for 2017-18 which included $7.692 billion loans and $401.78 million grants. Finance Division debt policy statement 2017-18 presented to Parliament last week revealed that gross public debt increased by around Rs 652 billion during first quarter of 2017-18 with domestic debt accounting for Rs 521 billion while government borrowing from savings schemes and other domestic sources amounted to Rs 433 billion. During first quarter of 2017-18, the government issued fresh/rollover guarantees aggregating to Rs 60 billion while outstanding stock of government guarantees by end September 2017 amounted to Rs 999 billion.
The rise in external debt comes at a time when official foreign currency reserves are going down as well. It needs to be added here that the SBP has already lost $3.5 billion worth of reserves since the start of the fiscal year. Due to huge domestic and foreign borrowings, debt servicing is now the single largest charge on the federal budget. A sum of $3.62 billion was spent on the servicing of outstanding stock of external debt in just six months. The country paid $2.7 billion in principal loans and $988 million in interest on outstanding loans. The trend of increasing external borrowing is not a good sign for the economy. Instead, more reliance should be placed on generating internal revenue to plug the fiscal gap.