Pakistan’s foreign borrowing surges to $6.7bn

The Government of Pakistan has now received $6.7 billion in gross foreign loans over the course of the first seven months of the current fiscal year, including a new commercial loan of $500 million acquired from China last month.

As reported by The Express Tribune, during the July-January period of fiscal year 2020-21, the government obtained $6.7 billion in external loans from multiple financing sources, according to the Ministry of Economic Affairs on Wednesday. The gross loans were higher by 6% or $380 million over the same period of last fiscal year.

The government also signed a new agreement worth $1.1 billion on Wednesday with the Islamic Development Bank (IDB). Total inflows in seven months were equal to 54% of the annual budget estimate of $12.2 billion for the current fiscal year.

In January alone, the government received $960 million in foreign loans, including $675 million from commercial banks, which were the most expensive loans. Out of the $6.7 billion, an amount of $2.7 billion or 41% of the total loans were on account of foreign commercial loans, said the ministry.

Nearly 87% of the foreign loans or $5.8 billion were for budget financing, building foreign exchange reserves and commodity financing.

The country would be paying back those loans after taking new loans as no revenue-generating assets were created by using the loans. Project financing was a mere $897 million or 13%.

The government received $500 million as a new loan from the Industrial and Commercial Bank of China (ICBC) in January, taking the total ICBC lending to $1 billion in the current fiscal year.

In addition to that, China provided $1 billion worth of SAFE deposit. Also, China extended $1.5 billion in trade financing facility, which was the obligation of the central bank and not counted as part of the $6.7 billion borrowing in the past seven months.

China’s continued financial assistance to Pakistan has helped in keeping the gross official foreign exchange reserves at around $13 billion despite suspension of the International Monetary Fund (IMF) programme, negative growth in exports and major debt repayments to Saudi Arabia and other creditors.

“Considering foreign exchange constraints, financing of development projects and repayments of these huge external public debts compel the incumbent government to further borrow from multiple sources,” said the Ministry of Economic Affairs.