KARACHI: Pakistan has borrowed over $ 12 billion in the 11 months of the current fiscal year (11MFY21) – an increase of about 63% over the same period of fiscal 20 – reflecting the growing need foreign exchange despite record remittances and higher exports.
In fiscal year July 21-May, the government borrowed $ 12.13 billion compared to $ 7.44 billion in the same period of the previous fiscal year, registering an increase of $ 4.68 billion or 62.8 pc. According to monthly data for May released by the Ministry of Economic Affairs, unlike the previous year, the government borrowed heavily in FY21 to maintain its improved foreign exchange reserves.
However, about half of the loans were borrowed in the form of commercial loans, meaning that the interest would be much higher than the loans received from the Asian Development Bank (ADB), the World Bank and the Islamic Bank of development (BID).
About half of the loans were commercial with a higher interest rate
This higher borrowing was made despite a current account surplus that was not expected until the start of the new fiscal year 21. In fiscal year 11MFY21, the current account is still in surplus with $ 153 million, which has been of great support to the economy’s external account, especially in the presence of 29% growth in remittances.
Borrowing from multilateral sources was $ 3.37 billion while the total from commercial banks was $ 3.61 billion. Commercial borrowing is very expensive, and debt service will increase further in the years to come. In the first three quarters of FY21, the government paid $ 10.63 billion in debt service while the expected total at year-end could be around $ 14 billion .
Among multilateral sources, the AfDB provided $ 1.28 billion, the International Development Association (IDA) $ 850 million and the IDB $ 508 million as short-term financing.
Pakistan has received $ 417 million from bilateral sources. Total multilateral and bilateral loans reached $ 3.79 billion during 11MFY21.
With the inclusion of $ 3.61 billion in commercial bank loans and $ 2.5 billion in euro bonds, total government grants and loans reached $ 10.89 billion. The addition of government guaranteed debt of $ 1.24 billion brought total borrowing to $ 12.13 billion. The total grants amounted to $ 231 million.
Data shows that the inflow of loans during the month of May was approximately $ 699.7 million. However, the government has stayed close to its budget target for grants and loans.
The budget indicates that the inflow of grants for FY21 was $ 275.8 million, while the 11MFY21 inflow reached $ 231.6 million. Likewise, the loan estimate in the budget was $ 11.96 billion while it reached $ 11.90 billion during this period.
The government faced a difficult situation despite a current account surplus of $ 153 million in 11MFY21. The current account has been in deficit for six months. The deficit in May was $ 632 million, indicating that in June, the last month of this fiscal year could see an even larger deficit. Most payments are made at the end of the fiscal year, which can lead to larger outflows from the country.
Posted in Dawn, le 27 June 2021