ISLAMABAD: Amid external account challenges, Pakistan borrowed about $5.115 billion in foreign loans in the first five months (July-November) of the current fiscal year, almost 14pc higher than the foreign loans it received in the comparable period last year.

In its monthly report on Foreign Economic Assistance (FEA), the Ministry of Economic Affairs (MEA) said it received about $5.115bn foreign assistance in 5MFY23 compared to $4.499bn in the same period last year.

In November alone, Pakistan received $842 million from foreign inflows compared to $794m in the same month last year, a rise of 6pc.

As such, the total inflows at $5.115bn in 5MFY23 amounted to just 22.4pc of the budget estimates of $22.817bn for the entire year.

PDM govt borrowed 14pc more from global lenders

The inflows of $4.5bn in 5MFY22 accounted for 37 of the annual budget estimates of $12.233bn. The MEA had finally reported the full fiscal year 2021-22 foreign economic assistance at $16.975bn.

In the same five months of 2019-20, the external inflow was $3.108bn around 24pc of the annual budgeted amount of $12.958bn. Last week, the MEA reported that Pakistan had received a total of $10.7bn during 2019-20 and $8.4bn in 2018-19.

The foreign inflows reported by MEA also include expensive foreign debt in Naya Pakistan Certificates from overseas Pakistanis and stood at just $139mn in five months against a full-year target of $1.63bn.

Unlike previous years, there were only three major sources of foreign inflows this year and including $4.172bn from multilateral lenders followed by $602 million from bilateral lenders and about $200mn from commercial banks.

The 4th usual source –- international bonds -– had dried up because of poor credit rating amid external account challenges and resultantly historically low foreign exchange reserves. The government had targeted $2bn in international bonds for the current fiscal year but no funds could be raised in five months.

Of the multilaterals, the Asian Development Bank turned out to be the biggest lender with $1.677bn loan disbursements in 5MFY23 followed by $1.166bn from the International Monetary Fund whose subsequent disbursement ($1.17bn) planned for the first week of November could not materialise because of differences with the authorities over the completion of 9th review.

The government has targeted $3bn inflows from the fund during the current fiscal year. The ADB’s disbursements, however, more than doubled to $1.677bn in 5MFY23 when compared to $712m in 5MFY22.

The World Bank Group disbursed about $624m in 5MFY23 compared to its $694m during the same period last year. The Beijing-based Asian Infrast­ructure Investment Bank (AIIB) disbursed $510m so far, up drastically from just $38m during the comparable period last year. The Islamic Development Bank also extended about $175m including $161m in short-term financing.

Among the bilateral lenders, Saudi Arabia extended about $500m in deferred oil payment facility in 5MFY23 against a negligible share of just $1m in the comparable period of last year. This was followed by China with $55m, up from $22m last year.

The loans from commercial banks were down to just $200m this year compared to a $1.53bn in 5MFY22.

The report said the government received $3.786bn worth of inflows for budgetary support and $661m of short-term credit. This put the total non-productive (non-project) assistance at $4.447bn in 5MFY23 (out of total inflows of $5.115bn) against a full-year target of $21bn, which meant that more than 85pc of total loans were acquired for oil imports, budget financing and replenishment of foreign exchange reserve.

About $645m were secured this year for various foreign-funded projects compared to $1.2bn in the same period last year, down by about 46pc.

The MEA data showed that the size of foreign loans had been steadily increasing over the last four years from $10.59bn in 2018-19 to $10.662bn in 2019-20 and then reaching $14.28bn in 2020-21 followed by $16.97bn in 2021-22. This showed Pakistan’s heavy reliance on foreign loans to finance the rising current account deficit and salvage declining foreign exchange reserves.

This was also 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 $17bn. The government borrowed a total of $14.3bn in the full 2020-21. The target for the current fiscal is significantly higher at about $23bn.

This sheds light on an unfortunate slide towards the debt trap as the governments had to rely on short-term expensive commercial loans amid the inability of the authorities concerned to ensure sufficient non-debt-creating inflows through higher foreign direct investments, remittances and exports.

Published in Dawn, December 24th, 2022

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