Foreign loans remained low at $9.5b

Foreign loans remained low at $9.5b

Pakistan received less than $9.5 billion in foreign loans in the first eight months of the current fiscal year and is also having trouble securing new loans from its two biggest multilateral lenders.

Overall disbursements from foreign creditors slowed during the July-February period of the current fiscal year despite Pakistan having the umbrella of the International Monetary Fund (IMF). The government received just $318 million from foreign lenders in February.

The Economic Affairs Division on Thursday reported the latest production figures. Data reported by the ministry of economic affairs and the central bank show that Pakistan secured nearly $9.5 billion in foreign loans in the first eight months of the current fiscal year. Pakistan also secured $6 billion in deposit transfers from Saudi Arabia, China and the United Arab Emirates (UAE), bringing total external sector inflows to $15.4 billion, or 62% of its needs.

The country receives these loans in the form of budget support and balance of payments as well as project financing. But gross foreign exchange reserves held by the central bank remained at $8 billion despite buying more than $2 billion from the domestic market.

After having trouble getting foreign commercial loans and floating Eurobonds, the federal government is also having difficulty meeting new loan targets from the World Bank and the Asian Development Bank (ADB).

Finance Minister Muhammad Aurangzeb on Thursday met ADB country heads and sought financial support in the current fiscal year as well as under the next IMF programme. IMF money alone will not solve Pakistan’s fiscal problems.

The government received just $222 million from multilateral lenders in February, bringing the total to $2.6 billion for the current fiscal year. It still expects to receive $5.2 billion this year. However, the target may be off target.

ADB provided just $635 million in eight months, making up 31% of the $2.1 billion annual budget. It seems that the Ministry of Finance and the Ministry of Economic Affairs have set unrealistic targets when the budget was announced.

Aurangzeb emphasized ADB’s assistance through policy-based loans to mitigate the effects of pandemics and floods, according to a finance ministry statement. The status of policy-based programs, including the Public-Private Partnership (PPP) program and the Climate and Disaster Resilience Enhancement Program (CDREP) were also discussed.

Pakistan has yet to meet all the conditions agreed under the PPP and CDREP programs. The government has not approved the PPP policy so far. Similarly, the terms for CDREP have not been agreed and there is a lack of clarity about the roles of different government ministries.

Sources said, against the budget target of $2.1 billion loan from ADB, Pakistan may barely receive $1.3 billion in the current fiscal year.

The country has not yet managed to secure the full Geneva pledge for the 2022 flood victims.

The World Bank is the largest lender after the IMF as it disbursed $1.4 billion in eight months. The IMF has provided $1.9 billion of the $3 billion loan package.

Pakistan has estimated to receive $2.3 billion from the World Bank this fiscal year and authorities hope to get at least $2 billion.

The government’s failure to fully utilize its borrowing options highlights poor budgeting and planning.

The Islamic Development Bank disbursed only $200 million in the current fiscal year out of an annual budget of $500 million. Although Pakistan has made full use of Saudi oil facilities estimated to be worth $600 million, it did not receive any new funds last month.

The estimated annual budget for commercial loans is $4.5 billion while efforts to secure at least $600 million from China have been unsuccessful.

China has linked its funding to an earlier settlement plan of Rs515 billion that Pakistan owes to Chinese power plants. Another Chinese commercial loan of $1 billion will mature in June where Pakistan is looking for its transition.

Finance Minister Aurangzeb expressed hope that the blocked commercial financing pipeline will open after the IMF approves the Extended Fund Facility.

The bilateral lender extended $768 million to Pakistan in the July-February period, excluding rollovers.

Pakistan received $686 million from overseas Pakistanis as investment in Pakistan Naya Certificates, exceeding the annual target.

The country is required to repay $11 billion over the remainder of the current fiscal year. But it expects a shift of just $6 billion, leaving a $5 billion gap.

The ministry hopes to receive a $1.1 billion tranche from the IMF, some new support from Bank Dunia and ADB to cover the shortfall.

The central bank will also buy dollars from the market to support repayment and maintain reserves at current levels.