ISLAMABAD: As it tried to handle the widening current account imbalance and retain debt-financed foreign exchange reserves at current levels, the government borrowed $10.4 billion in the last six months, up 78 percent from the same period last year.
Gross foreign loan disbursements during July-December of current fiscal year remained at $9.3 billion, the Ministry of Economic Affairs reported on Wednesday.
In addition to this, the government received $1.1 billion in foreign loans from the overseas Pakistanis through the Naya Pakistan Certificates, the central bank data showed. The cumulative gross foreign loans secured in the first half of current fiscal year were higher by $4.5 billion, or 78%, from the same period of previous fiscal year, showed the official statistics.
The country is sliding deeper into the debt trap and has reached a point where it is now contracting the most expensive foreign loans in its 75-year history. Successive governments, including the current one, have failed to ensure sufficient inflows through the non-debt creating sources, ie exports and foreign direct investment. However, the remittances – another non-debt creating source – have shown a significant improvement over the past two years.
Information Minister Fawad Chaudhry said last month that the government was taking new loans to pay off the old debt.
The Debt Policy Statement 2021-22 showed that contrary to the claims of the government that the debt burden was increasing due to the repayment of old loans, the external debt repayments, in fact, decreased $2.1 billion, or 23.3%, in the last fiscal year compared to the preceding year.
The highly expensive Naya Pakistan Certificates-backed loans are a new debt instrument that the Pakistan Tehreek-e-Insaf (PTI) government has added to the list. The $1.1 billion loan from July through December of current fiscal year was acquired at 7% interest rate in dollar terms. The foreign loans of $9.3 billion, reported by the Ministry of Economic Affairs, are inclusive of the $3 billion short-term loan received from Saudi Arabia last month.
However, despite the Saudi Arabian assistance, the gross official foreign exchange reserves dipped to $17.1 billion by mid-January – sufficient to finance hardly 10 weeks of imports.
An amount of $2 billion was received in foreign commercial loans from banks in the first six months of current fiscal year, including $502 million in December.
The government borrowed $1.1 billion from Dubai Bank, including a fresh contract for $420 million.
Another loan of $487 million was taken from Standard Chartered Bank, London, according to the economic affairs ministry. A financing of $343 million was secured from Credit Suisse AG.
Overall, 84% of the loans, or $8.7 billion, were taken for non-productive purposes like budget financing, crude oil import and foreign exchange reserves’ building.
Owing to the increasing reliance on loans to enhance the country’s foreign currency reserves and finance the budget deficit, the cost of debt servicing has gone up significantly.