Debt can be productive if used for creating assets: EAD

The Economic Affairs Division (EAD) stressed that a prudent external debt management strategy coupled with strong institutional arrangements is necessary for managing external debt and improving the repayment capacity of the country.

The Division in its "Annual report on Foreign Economic Assistance (July - June 2021-22)," stated that debt can be productive if it is used for creating assets that generate positive returns and externalities.

The report noted that in terms of new commitments, the government of Pakistan signed new agreements worth $15.722 billion in the fiscal year 202122. These commitments were composed of Eurobonds, Time deposits from Saudi Arabia, and multilateral and bilateral development partners.

Out of these commitments, 62 per cent was committed by international financial investors under bonds, commercial banks, and time deposits to provide support to the budget, strengthen the foreign exchange reserves and stabilize the exchange rate, 16 per cent as project financing, 14 per cent as commodity financing, and 8 per cent as program financing.

In 2021-22, the government signed new agreements worth $15.722 billion as commitments - $4.722 billion with foreign commercial banks $3.561 billion with multilateral development partners -$2.396 billion with bilateral development partners - $3 billion as SFD time deposits and $2 billion committed as Eurobonds.

Amongst the multilateral development partners, the following emerged as the largest partners in terms of new commitments, during the period under review: ADB with $1.783 billion (50per cent of multilateral partners), Islamic Development Bank with $1.134 billion ($881 million as short term and $252 million as long term) and the World Bank committed $341 million (10per cent of multilateral partners).

During the period under review, the government committed $2.547 billion as project financing for the procurement of Covid-19 vaccines, energy/power, education and training, social welfare, water, and health and nutrition sectors of the economy. From July 2021 to June 2022, disbursements of $16.974 billion were mainly under the project and program loans/grants with ADB, World Bank, and IsDB being the largest contributors among multilateral development partners. In bilateral, China was the largest contributor to total disbursements in the specified time. The energy and power sector received the largest share of disbursements, ie, 26 per cent of the total.

The composition of disbursements is as follows: a) $4.873 billion or 29per cent of total disbursements were from foreign commercial banks; b) $4.828 billion or 28per cent of total disbursements were from the multilateral development partners, mainly ADB, World Bank, and IsDB c) $3 billion or 18per cent of total disbursements were recorded under SFD Time deposits. d) $2.231 billion or 13per cent of the disbursements were from bilateral development partners particularly China and Saudi Arabia. e) $2 billion or 12per cent of total disbursement were from international bondholders.

External financing is an important source for developing countries including Pakistan as it can be productive for the economic growth of such countries. External debt is the total external debt owed by the country, whereas, external public debt is the total external debt owed by the government.