More loans

The Pak Banker - - FRONT PAGE -

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.

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