ISLAMABAD:
Pakistan secured $6.4 billion in foreign loans during the first five months of the current fiscal year, which was equal to one-fourth of the revised annual requirement, amid hopes for a surge in disbursement in the coming weeks on the back of some “bullet borrowing”.
The Economic Affairs Division (EAD) reported on Monday that the country received a little over $400 million in foreign loans during November 2023. Barring July, foreign loan receipts remained low in the other four months – a trend that is expected to reverse by next month.
Pakistan received $6.4 billion from July to November in the shape of budget support, bridging balance of payments and project financing, according to data compiled by the EAD and the State Bank of Pakistan.
A major chunk of $5.2 billion was received in budget and reserves’ loans, which constituted 81% of total borrowing in five months. This borrowing was not made for any project financing.
The central bank’s gross foreign exchange reserves still remain low and stand around $7 billion. The International Monetary Fund (IMF) board is set to meet on January 11 to approve next loan tranche of $700 million.
Earlier, Pakistan was hoping to receive the loan tranche in December but the finance ministry could not convince the IMF. The lender disbursed $1.2 billion in first tranche in July. The World Bank and the Asian Infrastructure Investment Bank (AIIB) are also expected to approve loans of $600 million this month.
Out of the total of $6.4 billion, $3 billion has been disbursed by Saudi Arabia and the United Arab Emirates (UAE).
China disbursed $517 million, including $508.4 million for the JF-17 B project funded by the China National Aero-technology Import and Export Corporation, according to the information released by the EAD.
However, the finance ministry did not succeed in getting foreign commercial loans during the first five months of FY24. The annual budget estimate on account of commercial loans is $4.5 billion.
Fitch Ratings said last week that it would be challenging for Pakistan to raise $4.5 billion in commercial loans and another $1.5 billion through Eurobonds. The government is bridging the gap through import compression.
Read Pakistan needs $25b loans this FY: IMF
The Asian Development Bank (ADB) disbursed $120 million, the World Bank $490 million, the Islamic Development Bank $100 million and Saudi Arabia $500 million under an oil financing facility in five months.
Pakistan also received $1.4 billion from the multilateral and bilateral creditors, which comprised 22% of the annual estimate. It got a $408 million loan against the expensive Naya Pakistan Certificates during the current fiscal year.
The IMF’s recent staff-level report underlined that medium-term risks to Pakistan’s debt “are high” and the risks included uneven programme implementation, political risks and access to adequate multilateral and bilateral financing in view of the high gross financing needs.
Pakistan’s debt-to-GDP ratio and gross financing needs-to-GDP ratio currently exceed sustainable levels of 70% of gross domestic product (GDP) and 15% of GDP respectively, according to debt reports of the Ministry of Finance.
If the gross financing requirement surpasses 15% of GDP, it is considered unsustainable. The Ministry of Finance’s projections suggested that the country’s needs would remain above that threshold for at least three years.
Owing to any adverse shocks, these two ratios may remain above sustainable levels until at least 2026, according to the finance ministry.
The IMF has revised Pakistan’s foreign loan requirement estimate for this fiscal year compared with July. It has lowered foreign loan needs from $28.4 billion to $25 billion, a reduction of $3.4 billion.
The IMF has now projected a current account deficit of $5.7 billion, down about $770 million in comparison with its old estimate.
But the current account deficit forecast remains largely in line with the government’s estimate of $4.5 billion. During the first five months, the deficit stood at only $1.1 billion, offsetting the low foreign loan inflows.
Published in The Express Tribune, December 19th, 2023.
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