ISLAMABAD: The interim government of Pakistan requested a review of the yearly finance plan in light of the current economic realities, and the country received nearly $5 billion in new loans in July, the highest sum received in any month.
Preliminary data from the Ministry of Economic Affairs and the State Bank of Pakistan (SBP) show that after Islamabad reached a nine-month deal with the International Monetary Fund (IMF), the country saw a dramatic increase in the amount of money it borrowed from abroad.
Budget and project financing for Pakistan totaled $2.9 billion in July, the first month of fiscal year 2023-24, while another $2.2 billion was deposited into the central bank.
The central bank’s gross foreign exchange reserves rose to almost $8 billion as a result of these injections.
A $4.4 trillion increase in foreign exchange reserves
Saudi Arabia and the UAE each disbursed $1 billion, for a combined total of $3 billion. $1.2 billion was given out by the IMF.
New information indicated that Saudi Arabia lent $2 billion for two years at an interest rate of 4%. This loan is due in full in July of 2025.
According to data issued by the Ministry of Economic Affairs on Monday, China spent $508.4 million on the JF-17 B project sponsored by the China National Aero-technology Import and Export Corporation (CATIC).
Other foreign creditors disbursed funds at a rate that was lower than typical but nonetheless consistent with July’s average.
Under the oil financing facility, the Asian Development Bank (ADB) released $20 million, the World Bank released $82 million, the Islamic Development Bank released $67 million, and Saudi Arabia released $100 million.
The extremely costly Naya Pakistan Certificates were used as collateral for a $75 million loan that Pakistan received.
Medium-term risks to Pakistan’s debt were highlighted in a recent IMF staff study as “high,” including inconsistent programme implementation, political concerns, and access to appropriate international and bilateral finance given the country’s substantial gross financing needs.
According to the IMF assessment, in order to cover the costs of maturing loans, Pakistan will need an additional $12.3 billion in new loans between July and December of the current fiscal year. The International Monetary Fund (IMF) has placed the total gross funding requirements for this fiscal year at $28.3 billion.
According to the IMF’s staff assessment released this week, “the overall risk of sovereign stress is high, reflecting a high level of vulnerability from elevated debt and gross financing needs and low reserve buffers.”
On Monday, the country’s debt condition was presented to Finance Minister Dr. Shamshad Akhtar. The latest information on the government’s need for monetary aid from abroad was shared with her.
Foreign loans anticipated by the government for the current fiscal year were broken down for the minister, and the debt sustainability issue was discussed.
Financial forecasts for loans from non-Chinese foreign commercial banks and sovereign bonds, according to sources, have been called into question as the minister of finance ordered a reassessment of the plan in light of current economic conditions.
She wanted to know if Pakistan would receive the $4.5 billion in non-Chinese commercial loans that had been planned for. The Treasury Department seemed enthusiastic. Floating bond loans of $1.5 billion are also included in the government’s planned expenditures.
She had been briefed on the dangers to the country’s ability to pay its debts, especially in the face of sudden shocks.
A further exchange rate shock would keep Pakistan’s state debt over the 70% of GDP that is considered sustainable level for at least the next three years.
Pakistan’s current debt to GDP ratio of 70% and gross finance needs to GDP ratio of 15% are both over their sustainable norms.
Gross finance requirements are unsustainable if they exceed 15% of GDP. According to our sources, the Ministry of Finance expects the demands to exceed that level for the next three years.
The Ministry of Finance estimates that if there are any negative shocks, these two ratios will continue above the sustainable range until at least 2026.
According to a recent risk analysis, the debt burden would rise above the 70% threshold, making it unsustainable, in the event of shocks relating to real GDP growth, primary balance, real interest rate, currency rate, and contingent liabilities.
Gross finance needs are expected to be between 19.2% and 18.9% of GDP over the next three fiscal years, which is still over the sustainable norm of 15% even if no shock scenarios occur.
The International Monetary Fund (IMF) estimates a current account deficit of $6.4 billion, or 1.8% of GDP, for the current fiscal year, and puts financing needs at 22.2% of GDP.
