ISLAMABAD: Despite healthy remittances and higher exports, Pakistan borrowed about $ 14.3 billion to build up foreign exchange reserves in the just ended fiscal year (FY21), 34% more than a year earlier.
The Ministry of Economic Affairs said on Monday that the government received $ 14.283 billion in foreign loans in fiscal year 2020-21, up from $ 10.66 billion in 2019-2020, an increase of 34pc.
Total foreign loans exceeded the target of $ 12.233 billion set in the 2020-2021 budget by 17%, indicating higher foreign exchange needs to finance previous imports and loans. Most of the $ 8.2 billion was guaranteed by non-traditional multilateral and bilateral lenders, although Saudi Arabia’s targeted $ 1 billion loan failed to materialize during the year. . The gap was bridged by securing a Chinese loan of an equivalent amount that was not part of the original budget estimates.
$ 14.28 billion borrowing indicates higher foreign exchange needs to finance imports, past loans
In addition, the government has secured $ 2.5 billion through international bonds against a budget target of $ 1.5 billion. These included $ 1 billion Eurobonds for a 10-year maturity, $ 500 million for 30 years and $ 1 billion for five-year bonds due 2026. On top of that, the government has also secured $ 4.7 billion in commercial loans from international banks against a budget target of $ 3.9 billion.
All of these commercial loans were arranged for budget support and included $ 200 million each of the four loans from Standard Chartered Bank London, $ 275 million from Switzerland AG-UBL, $ 400 million from Ajman Bank, $ 825 million from Dubai Bank, $ 370 million from Emirates NBD, $ 1 billion (two loans of $ 500 million each) from the Industrial and Commercial Bank of China (ICBC) and $ 2 billion (two loans of $ 1 billion dollars each) from the Chinese government and the Development Bank of China.
The government missed its multilateral lending budget target of nearly $ 1 billion due to lower disbursements from the Asian Development Bank (AfDB), the Asian Infrastructure Investment Bank (AIIB), the Islamic Development Bank, the World Bank Group, etc. Together, these multilaterals disbursed $ 4.37. billion dollars in FY21 versus budget estimates of $ 5.354 billion. These loans do not include $ 500 million disbursed by the International Monetary Fund (IMF) in April 2021, which is accounted for separately in the accounts of the central bank.
Disbursements from traditional bilateral lenders were almost on track at $ 453 million against budget estimates of $ 457 million.
Lower than expected disbursements from multilateral agencies – ADB, World Bank and AIIB – and the resulting higher borrowing from commercial banks and bonds forced Pakistan to swallow significantly higher interest rates. For example, the three Eurobonds were launched at an interest rate of 6-8.88% against a cost of around 1-2% for the multilaterals.
Ministry data showed that the amount of foreign loans has increased steadily over the past three fiscal years, from $ 10.59 billion in fiscal year 19 to $ 10.662 billion in fiscal year 20, then to $ 14.28 billion in FY21 despite a favorable current account situation supported by strong remittances from foreign Pakistanis. The country has received about $ 2.115 billion in foreign loans. Of this, a significant portion of $ 1.1 billion was obtained from commercial banks and $ 966 million from multilateral institutions.
In FY20, the government secured $ 10.662 billion in total external inflows from multiple funding sources, which was 82% of the annual budget estimate of $ 12.958 billion for that year. The gap between the budget target of $ 13 billion and actual inflows of $ 10.6 billion in FY20 was mainly due to the government not being able to issue euros – $ 3 billion bonds on international capital markets.
Posted in Dawn, July 20, 2021