Only $4.2 billion in loans from overseas are received.
Borrowing alternatives continue to be limited in spite of rising costs and prolonged delays in satisfying criteria.
ISLAMABAD:
In the midst of diminishing borrowing options due to increasing costs, delays in meeting the conditions set by international creditors, and a credibility crisis, Pakistan has only received 4.2 billion dollars in loans from other countries. This is less than one-fifth of the budget that was estimated for the country.
On Friday, the Ministry of Economic Affairs revealed that the total amount of money that was paid out to borrowers of foreign loans from July through October 2022 was $4.2 billion. When compared to the sum of the loans obtained during the same time period during the previous fiscal year, this amount was 10% greater.
However, it was not enough to meet the escalating demands for debt repayment, external account financing, and boosting the country’s foreign exchange reserves to $16.2 billion, as was agreed upon with the International Monetary Fund (IMF).
Only in the month of October were half of the loans acquired; this was made possible by the Asian Development Bank’s (ADB) decision to grant $1.5 billion with few, if any, conditions attached, albeit at a higher interest rate. The Asian Development Bank (ADB) continues to be the top lender despite only having distributed $1.6 billion so far, which is about half of the annual estimate.
The International Monetary Fund has estimated that Pakistan’s gross financing needs for FY23 will be $34 billion. In addition, Pakistan will need an additional $6 billion to increase the cushion of foreign currency reserves, bringing the total amount that Pakistan will need to borrow to $40 billion. However, the total authorised amount for the government’s foreign loans for the fiscal year 2022-2023 is only $22.8 billion. Only the portion of the debt repayment is able to be financed by the sum that was budgeted.
Only 18.4% of the annual projection of $22.8 billion was covered by the expenditures made in July, August, and October, which totaled $4.2 billion. As a result of Pakistan’s outlook being reduced to negative and its debt rating being downgraded to junk status by foreign credit rating agencies, Pakistan’s borrowing alternatives have remained restricted. In addition to preventing the country from issuing floating Eurobonds, this has led to a rise in the cost of borrowing money for the country.
Due to the increased likelihood of default, sources claimed that international commercial banks were also seeking an interest rate that was approximately forty to fifty percent higher than what the government had been paying in the past.
According to the economic affairs ministry, Pakistan has only received a total of $200 million in the form of a commercial loan from a foreign country during the current fiscal year. This compares to the yearly expectation of $7.5 billion.
The name of the international financial institution that refinanced the debt has not been made public by the government; nonetheless, some claim that it was the Bank of China.
The talks that Finance Minister Ishaq Dar had in Dubai with the managements of key commercial banks, such as Dubai Islamic Bank, Ajman Bank, and Emirates NBD, were held in order to overcome bottlenecks that were standing in the way of receiving commercial loans from other countries.
According to a statement that was released by Pakistan’s Ministry of Finance, “commercial banks reposed confidence in the existing economic policies of Pakistan and guaranteed their sustained support.”
The government of Pakistan had planned to borrow $2 billion through the sale of sovereign bonds, but the plan did not come to fruition because Pakistan has a weak credit rating and the anticipated interest cost is exorbitant.
Additionally, the government has anticipated that it will get $4 billion from the IMF, which was later enhanced from the original projection of $3 billion. To this point, only $1.2 billion has been sent, and there has been no announcement regarding a time frame for a visit by an IMF mission. The visit is absolutely necessary in order to get an additional $1.2 billion in funding from the IMF.
Under its most pricey scheme, the Naya Pakistan Certificate, the government has allocated a budget for loan payments of $1.6 billion. According to the Ministry of Economic Affairs, the amount that might be received up to this point is $70 million, which represents 4.3% of the annual forecast.
During this time, the country’s foreign exchange reserves have fallen below $8 billion in preparation for the repayment of $1 billion in Sukuk on December 5. It is now of the utmost importance to have a mission of the IMF based in Islamabad so that frayed nerves can be soothed.
The government projects that it would receive loans totaling $7.7 billion from multilateral organisations during the current fiscal year. This figure was arrived at through estimation. In just four months, $2.3 billion, or thirty percent of the total, has been distributed.
The fate of the almost 1,100 million dollar budget support loan from the World Bank is currently uncertain. Pakistan asserts that it has satisfied the requirements for a loan of 450 million dollars, but the World Bank board has not yet settled on a time and place for their meeting.
According to the Ministry of Economic Affairs, the World Bank distributed around $476 million in loans and grants during the first four months of FY23.
In addition, the Islamic Development Bank contributed $168 million toward the project, which had an estimated annual cost of over $1.2 billion. In contrast to the annual estimate of $800 million, Saudi Arabia spent only $400 million from a credit facility for the oil industry.
