Representational pictures. PHOTOS: REUTERS
ISLAMABAD: Pakistan plans to seek a $ 15 billion gross foreign loan in the next fiscal year aimed at paying off external public debt that is due and building official foreign exchange reserves without any non-debt inflows.
Of the estimated $ 15 billion in external loans in fiscal 2020-21, nearly $ 10 billion or – two-thirds, will be used to repay loans that are due, not including interest payments, a source at the Ministry of Finance said. The remaining slightly above $ 5 billion will be part of external public debt that has risen to $ 86.4 billion by the end of March this year.
The $ 15 billion loan, which is expected to be the highest loan to be taken by the state in one year, highlights the challenges faced by each government because of the deepening debt trap. Pakistan’s Tehreek-e-Insaf government, like its predecessors, also remains unable to fully utilize the non-debt inflows that create inflows such as exports, remittances and foreign direct investment.
Due to the inability to increase non-debt inflows, Pakistan’s $ 12 billion in official gross foreign reserves held by the State Bank of Pakistan (SBP) is largely a loan product – a phenomenon that is also common in the Pakistan-Nawaz Muslim League (PML-Era N).
For the fiscal year 2020-21, the International Monetary Fund (IMF) has projected SBP reserves at $ 15.6 billion in the April report, which again would not be possible without loans, because the IMF saw only a slight increase in exports and a slight decline in shipments money in the next fiscal year.
The Ministry of Finance estimates gross receipts of $ 15 billion from bilateral and multilateral lenders, commercial banks, Eurobonds and IMF issuances for fiscal year 2020-21, according to sources.
Pakistan’s heavy dependence on foreign creditors can be measured by the simple fact that from July 2018 to June 2021, it will take a new loan of $ 40 billion. Of the $ 27 billion it will be used to pay off old loans and the remaining $ 13 billion will be added to external public debt.
As per official estimates, by the end of June this year, the PTI government would take nearly $ 25 billion in loans within its tenure and $ 16.5 billion had to be used to pay the principal loan.
Estimates of new loans in the next fiscal year will be 7% or $ 1 billion higher than the estimated revised external year estimated at $ 14 billion from external inflows, the source said.
Pakistan is currently under the IMF program but the program has remained technically suspended for the past few months. The PTI government is trying to revive it from July by meeting IMF requirements in future budgets.
Realizing $ 15 billion in foreign loans will also depend on the revival of the IMF program, because the government has included loans from the IMF and budget support from the World Bank and the Asian Development Bank (ADB).
Pakistan expects to receive $ 2.1 billion from the IMF in the next fiscal year, depending on the successful completion of the quarterly review. This year the IMF provided $ 2.8 billion, including $ 1.4 billion in Covid-19 emergency assistance.
The government still has plans to borrow $ 3.4 billion from foreign commercial banks, which basically will be a rollover of existing commercial loans. If Pakistan takes advantage of the G-20 debt relief, Pakistan may not be able to contract new commercial loans until December 2020.
Bilateral inflows are estimated at only $ 770 million due to completion of the ongoing Pakistan Economic Corridor projects.
Pakistan estimates a $ 6 billion loan from multilateral creditors in the next fiscal year. ADB is expected to lend $ 1.4 billion compared to $ 2.8 billion this fiscal year. The World Bank could provide $ 2.9 billion in new loans after all of its policy loans were not realized this fiscal year, the source said.
The Islamic Development Bank is expected to provide a fresh loan of $ 1 billion and an estimated $ 500 million in revenue from the Asian Infrastructure Investment Bank (AIIB), said the source.
The government also has plans to launch $ 1.5 billion Eurobonds in the next fiscal year after it cannot float $ 3 billion Eurobond this fiscal year. It must be seen whether the government can roam in international capital markets before December 2020 because of its decision to free debt from the G-20 countries.
Published in The Express Tribune, May 31st, 2020.
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