THE Asian Development Bank (ADB) on Thursday agreed to give $1bn budgetary support to Pakistan soon after a green signal from the International Monetary Fund (IMF) as the government had promised to have a majority transformation of its high debts having serious socio-economic and financial repercussions.
Speaking at a news conference at the 52nd Annual Meetings of Board of Governors, ADB President Takehiko Nakao said his bank had received a request from Pakistan for a budget support of about $1bn in addition to its IMF programme and normal large operations of the ADB for years.
“We are waiting for a good outcome of discussions over an IMF programme and if the IMF programme is there we would be happy to extend the budget support and other policy loans quite soon,” Mr Nakao said. At the same time, President Nakao expressed concern over repeated IMF bailouts.
“Pakistan has repeatedly visited IMF for a programme for balance of payments support. Repeated visits to IMF are not a good idea. It is better to be more solidly and steadily settle BoP and fiscal issues.
Pakistan’s public debt and liabilities have gone beyond 72pc of GDP, says Ishrat
He said he had a meeting in April with Pakistan authorities and a minister (Dr Ishrat) level discussion on the sidelines of ADB’s Fiji conference and was also in close contact with the IMF. He said it was good that the IMF was now there despite different views about the democratic process.
He said the Manila-based lending institution was ready to support Pakistan on the basis of IMF programme because Pakistan had a good opportunity to ensure democratic stability which was important for economic growth.
Meanwhile, speaking at a high-level panel discussion with President Nakao and deputy managing director of IMF Mitsuhiro Furusawa, Prime Minister’s adviser on Institutional Reforms and Austerity Dr Ishrat Husain conceded that Pakistan was in violation of the Fiscal Responsibility and Debt Limitation Law as its debt to GDP ratio had crossed 72pc instead of a limit of 60pc that could cause serious consequences.
He also dismissed notions/questions that Pakistan’s debt problem was the result of Chinese loans saying they were no more than 11.5pc of the total external debt of around $100bn. The adviser said that Pakistan had deliberately and continuously made full disclosure of its debt, liabilities and other obligations as part of regular reporting to the IMF, the World Bank and the public domain and it had never been asked questions about its credibility.
He, however, conceded that Pakistan had a debt problem with total public debt and liabilities going beyond 72pc of the GDP. Of this 72pc, maturity of about 40pc was domestic debt raised from commercial banks, national savings and the central bank having very serious repercussions on public finance as 37pc of the country’s revenue last year went to debt servicing and may have gone beyond 40pc this year mainly because of a 33pc currency depreciation against the dollar.
He said that this was a major problem because it had led to a cut in development programme and it had affected social sector improvement and poverty reduction efforts. The real challenge, he said, was on the domestic front, adding that the external public debt and liabilities were now around 33pc of the GDP.
He that that 72pc of Pakistan’ external debt came from multilaterals, commercial bank, the IMF and bilateral creditors. Of this, about 33pc came from multilaterals and therefore no worries while 14pc was from banks and short-term commercial loans. Of the total external debt and liabilities, only 11.5pc came from China against perceptions. He said that 75-80pc of Pakistan debt was government guaranteed.
He said that the debt vulnerability had some concerns as concessional loan had come down to 43pc from 55pc a few years ago while the non-concessional loans had gone up to 57pc.
He said that floating debt was now 36.5pc compared to 63.5pc of fixed debt. He said the government was now in the process of debt transformation towards medium and long term it was risk responsive to external economic environment.
Secondly, the government was trying to move towards concessional and quasi-concessional loan and engaging with Japan which used to be the single largest bilateral creditor but stopped after nuclear blasts two decades ago to come back and finance infrastructure and social development.
Thirdly, the government was working on increasing exports, remittances and foreign direct investment and working hard to mobilise domestic revenues to reduce fiscal deficit and create positive primary balance.
He made a strong defence of the CPEC, saying that $45bn investment announced by President Xi Jinping in 2015 was spread over 15 years compared to Pakistan’s annual investment programme of $50bn.
Published in Dawn, May 3rd, 2019