ISLAMABAD: Struggling with current account challenges and foreign exchange reserves, the PTI government borrowed more than $12 billion from abroad in the first seven months of the current fiscal year (7MFY22), almost 81 per cent higher than foreign loans it secured in comparable period last year.

The monthly report of the Ministry of Economic Affairs (MEA) on foreign inflows showed that the government crossed almost 86pc of the target for foreign assistance set for the whole fiscal year.

This does not include more than $1.2bn of foreign debt in Naya Pakistan Certificates from overseas Pakistanis which are not reported by the MEA. This also does not include about more than $1bn secured from the International Monetary Fund which flowed early this month.

This showed the government’s heavy reliance on foreign loans to finance rising current account deficit and maintain foreign exchange reserves needed to finance higher imports and earlier loans.

Borrowings went up over 81pc in 7MFY22

This was evident from the fact that the annual budget target for foreign debt was set at $14.088bn in the federal budget 2021-22 and the government borrowed $12.022bn in first seven months. The government had borrowed a total of $14.3bn in FY21.

With this, the total foreign debt from external sources (other than Pakistanis) reached $47.55bn in 43 months of the current government. The MEA data showed that the size of foreign loans had been steadily increasing over the last three and half years from $10.59bn in FY19 to $10.662bn in FY20 and then reaching $14.28bn in FY21 followed by $12bn in 7MFY22.

There were four major sources of foreign inflows which included $3.329bn of multilateral lenders followed by $3bn of time deposit from Saudi Arabia, about $2.623bn of commercial loans from private banks and $2.041bn worth of international bonds. About $196 million also came from bilateral lenders and about $179m of grants.

The report said the government received $8.4bn worth of inflows for budgetary support about $1.1bn of short term credit. This put the total non-productive (non-project) assistance at $9.5bn in seven months against full year target of $12.16bn, which meant that about 80pc of total loans were acquired for oil imports, budget financing and foreign exchange reserve build up.

About $1.68bn were secured against various foreign funded projects and about $832m for publically guaranteed loans.

The data showed the government secured $2.04bn through international bonds against a full year budget target of $3.5bn. On top of that, the government also obtained $2.623bn commercial loans from international banks against a full year budget target of $4.87bn. Of this, Dubai Bank was found to be the financier of choice which provided more than $1.14bn short-term loans out of $2.6bn. This was followed by $591m from Emirates NBD, $487m from Standard Chartered London and $343m from Suisse AG, United Bank Limited and Allied Bank Limited put together.

The biggest disbursement among the multilaterals came from Asian Development Bank at $1.09bn, followed by $1.086bn from Islamic Development Bank and $847m from the World Bank.

The largest among the bilateral loans came from China at $100m followed by $45m from the United States. Total loans from bilateral lenders stood at $196m in 7MFY22.

The report sheds light on unfortunate slide towards the debt trap as the government had to rely on short-term expensive commercial loans amid inability of the authorities concerned to ensure sufficient non-debt creating inflows through higher foreign direct investments and exports. The remittances which have been growing over the years amid travel bans following health pandemic also appeared to be struggling to maintain pace.

Published in Dawn, February 24th, 2022