ISLAMABAD: Pakistani authorities were able to materialise about $6.3 billion in foreign loans in the first seven months of the current fiscal year, almost 35.75 per cent of the annual budget estimate, amid limited borrowing avenues in the wake of poor credit rating and adverse conditions in the global financial markets despite the support of the International Monetary Fund (IMF).

However, the caretaker government now claims it has better debt management as it did not resort to international capital market and commercial loans envisaged in the 2023-24 federal budget.

In its monthly report on Foreign Economic Assis­tance (FEA), the Econo­mic Affairs Division (EAD) on Friday said the country received $6.3bn in July-January FY24 against its annual target of $17.6bn. This meant foreign inflows were just $170 million above $6.134bn in the same period last year which was a tough period given the challenging relationship with the IMF.

The low inflows were mainly because of the adverse international environment and the country’s poor credit rating, making international capital markets a no-go area for Pakistan. Therefore, Pakistan has deferred its plan to launch a $1.5bn Eurobond because of higher interest rates in the international capital markets and the country’s low credit rating.

The EAD report showed that besides the $1.5bn in fresh bonds, the government had also budgeted another $4.5b in foreign commercial loans for the current fiscal year but not materialised as the current account deficit declined.

Total inflows recorded by the EAD in January were $331m compared to $1.62bn in December, down almost five times, but slightly lower than the $416 million loans received in November. It may be noted that December 2023 had seen three larger disbursements by three major multilateral lenders – $638m by the World Bank, $469m by the Asian Development Bank and $255m by the Asian Infrastructure Investment Bank (AIIB).

In October, the country had received $318m in foreign inflows and $321m in September. Major FEA during the first seven months flowed in at $2.89bn in July 2023 soon after Pakistan reached an agreement with the IMF for a fresh short-term programme.

This FEA is in addition to $1.9bn released by the IMF in July and January as the first two tranches of the $3bn Stand-By Arrangement (SBA) and $1bn by the United Arab Emirates that are separately accounted for by the State Bank of Pakistan (SBP). Thus, total foreign inflows including IMF and UAE amounted to $9.2bn in seven months.

Strangely, the EAD had accounted for $1.16bn received from the IMF in the last fiscal year into its FEA inflows but did not depict similar $1.9bn inflows this year. Interestingly, the EAD had projected $3bn from IMF last year but only $1.16bn could be materialised following the derailment of its programme soon after the exit of former finance minister Miftah Ismail.

For FY24, the EAD had budgeted $2.4bn from the IMF which later actually committed $3bn in the wake of the signing of a fresh programme that would come to an end in April. The fund has now already disbursed about $1.9bn, leaving behind only $1.1bn subject to the successful completion of the quarterly review.

The Ministry of Finance was now anticipating $3.5bn in commercial loans based on the IMF agreement instead of $4.5bn in the budget.

The EAD said that out of $6.3bn, the bulk of $4.5bn was received for budgetary support or programme loans and about $1.8bn as project aid.

Published in Dawn, February 24th, 2024

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