Ex­ter­nal bor­row­ing

The Pak Banker - - FRONT PAGE -

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.

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