Pakistan has obtained new loans amounting to $1.4 billion in the first quarter of the ongoing fiscal year and nearly two-thirds of them are meant for filling the massive budget deficit gap and building foreign currency reserves.
Foreign commercial banks remained the single largest source of these loans, contributing one-third amounting to $458 million. The Islamic Development Bank was the second largest contributor with $392 million followed by China that gave $239.8 million. Three lenders contributed about 80% of the total loans, indicating the limited number of options the government has for foreign borrowings.
These loans were taken from July through September of the ongoing fiscal year for projects and budgetary support, according to the Ministry of Finance and Economic Affairs. Total foreign economic assistance stood at $1.5 billion in the first quarter, including $130.5 million as grants. The United Kingdom gave a $81.6-million grant while $21 million were given by the United States.
Official statistics show that out of the total $1.5 billion foreign economic assistance, $923 million or 61.3% is aimed at helping the country meet its foreign currency requirements.
One-third of the total foreign loans or $458 million were taken from foreign commercial banks, which is an expensive source of financing. Lately, Pakistan signed agreements worth $450 million with a Credit Suisse-led consortium comprising of United Bank Limited and Allied Bank Limited. Out of the total loan of $450 million, the consortium disbursed $205 million in September alone, according to official statistics.
The federal government had to sign the contract with commercial banks after its official foreign currency reserves slid below $14 billion, which were not sufficient to cover even three months of imports.
The finance ministry also finalised on Tuesday the process of hiring financial advisors for issuing Sukuk and Eurobonds to raise loans. The issuance of these global bonds would further increase the share of non-project lending into total portfolio.
The finance ministry is subject to criticism from all quarters due to its growing dependency on foreign lenders to meet the country’s external financing needs. In its first four-year rule, the strategies of the ruling party led to exponential growth in external loans and liabilities that swelled to $83 billion.
Compared with over 61% budgetary-support related loans, project loans stood at only $583 million or 38.7% of the total disbursements. There was a time when the project loans used to be roughly two-thirds of the total disbursements – a trend that started reversing after the PML-N government came into power about four and half years ago.
The Asian Development Bank disbursed only $117.3 million for projects’ financing in the first quarter, which was less than one-tenth of official annual estimates of $1.2 billion. The World Bank released $118.8 million in the first quarter – equal to 11.5% of the official annual estimates of $1.03 billion.
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China also gave $239.8 million in project financing, which was equal to 15% of annual estimates of $1.6 billion, according to official statistics. The Islamic Development Bank has also given $392 million but $339 million were in shape of short-term loans.
The government also faces dilemma about non-disbursement of project loans due to non-resolution of systemic problems. At the end of July 2017, the outstanding development project portfolio with 15 lenders stood at $29.7 billion, according to documents of the Ministry of Finance and Economic Affairs. Of this, multilateral and bilateral lenders disbursed $13.1 billion, leaving a balance of $16.6 billion, the documents showed.