It should be a matter of concern that Pakistan is going on another borrowing spree. According to a report, the government has planned to borrow a record-breaking $13 billion in the next fiscal year, which is nearly 63% higher than the outgoing fiscal year's original estimates, meant largely to repay previously obtained loans and stabilise nose-diving foreign currency reserves. The provisional estimate to borrow $13 billion has been prepared for the budget 2018-19 the PML-N government wants to present later this month. If the plan materializes as conceived, it will be the highest borrowing in a single year in Pakistan's 71-year history. In fiscal year 2016-17, Pakistan borrowed $10.4 billion.
However, it has not yet been confirmed whether the government will present a realistic plan of Foreign Economic Assistance in parliament on April 27 or like previous five occasions, it will understate the foreign borrowing plan. Former finance minister Ishaq Dar had presented only $8 billion as the foreign borrowing plan in parliament for the outgoing fiscal year. However, the government has already borrowed $7.3 billion in just eight months. The plan does not include borrowings from the International Monetary Fund (IMF), as at this stage the outgoing government does not want to avail another bailout. It has relied heavily on extensive foreign borrowings to remain afloat, as the government has failed to attract non-debt creating foreign inflows.
During its first four and a half years, the PML-N government took over $40 billion in foreign loans, throwing the country deep into debt.
The IMF has recently projected that Pakistan's external debt and liabilities will peak to $93.2 billion by June this year, which in 2013, when the PML-N took over, were nearly $61 billion. The government will have added over $32 billion in five years. For the next year, a majority of the loans, amounting to $4.7 billion, has been estimated to be received from three multilateral agencies - the World Bank, the Asian Development Bank (ADB) and the Islamic Development Bank (IDB). The ADB loans for next fiscal year are estimated at $1.1 billion, the IDB loans at $1.5 billion and the World Bank at $2.02 billion. The World Bank's loan estimates appear unrealistic, as the lender is unlikely to give huge sums without the IMF umbrella. From bilateral sources, Pakistan expects $3.5 billion in loans in the next fiscal year. This includes $2.9 billion from China alone, which in recent years has become the country's single largest donor.
Pakistan also plans to float $3 billion worth of Euro and Sukuk bonds, partly to repay the previous loans obtained by the PML-N. In April 2014, the PML-N government had raised $1 billion for five years at a fixed rate of 7.25% through the Eurobond. This bond will mature next fiscal year. The government also plans to take $2 billion foreign commercial loans, which remains its favourite tool in the past five years to relieve pressure on the external account. These loans will help meet external financing needs and cushion foreign currency reserves. Official gross foreign currency reserves are already close to $11.5 billion, which the IMF believes would slip to $9.3 billion by June this year, provided the government remains unable to contract sufficient foreign loans.
According to experts, higher current account deficit and increased external obligations are expected to double external financing needs in the medium term, taking a further toll on foreign exchange reserves. In these circumstances it is important that the government should redouble its efforts to push exports and attract more foreign direct investment in order to avoid expensive foreign loans.