Pakistan received foreign loans of $ 1.5 billion or $ 237 billion in the first two months of the current financial year, 108% more than the same period in the previous year, aimed at meeting the country’s financing needs.
Foreign disbursements have begun after the signing of the International Monetary Fund (IMF) loan program, which seeks $ 38 billion in foreign financing over three years to save Pakistan.
According to data compiled by the Ministry of Economic Affairs, bilateral and multilateral creditors and commercial banks disbursed $ 1.49 billion in loans in the July-August period of FY 2019-20.
Disbursements were $ 774 million, or more than 108%, compared to loans of $ 714 million received in July-August FY19.
In addition to the $ 1.5 billion loans, Pakistan also received foreign grants worth $ 132.3 million from the United Kingdom, the United States, and Japan.
The $ 1.5 billion in loans was equivalent to an estimated 11.5% of the $ 13 billion that the Pakistan Tehreek-e-Insaf (PTI) government secured in the current fiscal to meet the current account deficit and debt servicing requirements. Was aimed at
In its first year in power, the PTI government had acquired external debt of $ 16 billion.
The need for funding for the current account deficit is beginning to reduce, but still, the government will need about $ 8 billion to fill this gap in this financial year. The gross external financing requirements of Pakistan have been estimated by the IMF as a minimum of $ 25.6 billion for the current fiscal year. This is based on an estimated current account deficit of $ 6.6 billion in the assessment year.
However, State Bank of Pakistan (SBP) deputy governor Jamil Ahmed said on Friday that the current account deficit could be around $ 8 billion.
Pakistan reported a current account deficit of $ 1.3 billion during July-August FY20, down 53% compared to the same period in the previous fiscal year. Due to a current account deficit of $ 13.5 billion and debt repayments of about $ 11 billion in the last financial year, Pakistan took a $ 16 billion loan through foreign debt aimed at avoiding defaults on international debt obligations and financing imports.
Borrowings of $ 1.5 billion in July – August FY15 included $ 321.5 million in commercial loans and $ 500 million in budgetary support before the Asian Development Bank (ADB) after the IMF signed the agreement.
Disbursements by bilateral lenders amounted to $ 272 million, or 18% of total loans. Saudi Arabia gave $ 108 million for the import of Saudi goods.
China disbursed $ 158.3 million in project financing in the first two months of FY15, which is about 47% lower than the comparable period of the previous year. Chinese project financing has slowed due to the completion of several Sino-Pakistan Economic Corridor (CPEC) schemes.
Beijing disbursed $ 27.2 million for the Havelian-Thakot road project and $ 68.2 million for the Sukkur-Multan motorway designed for the inauguration and waiting by Prime Minister Imran Khan.
CPEC was most affected by the harsh conditions of the IMF loan program. Due to difficult credit terms, the nearly $ 9 billion Mainline-I railway project of CPEC is unlikely to be implemented soon.
Pakistan received $ 321.5 million in relatively expensive commercial loans, accounting for more than 21% of total disbursements. There was an almost five-fold increase in loan disbursements by commercial banks. Pakistan has estimated $ 2 billion in commercial loans during the current fiscal year.
Citibank gave $ 148.2 million to the government last month in a short-term finance facility. A consortium led by Dubai Bank and Credit Suisse disbursed a $ 173 million loan at the rates offered to the floating London Interbank in July.
SBP Governor Dr. Reza Bakir is trying to give risky hot money from Citibank to government securities.
Warm foreign exchange provides a temporary cushion for foreign exchange reserves but it creates more uncertainty when investors start to withdraw their money due to interest rate reduction.
Saqib Sherrani, the former economic advisor to the Pakistan People’s Party government, said on Friday that Bakir attended a citizen-sponsored conference in London to secure warm foreign funds.
Loan disbursements by multilateral creditors continued to increase last month and the country received $ 896 million from them, accounting for 60% of total disbursements.
The Islamic Development Bank disbursed $ 285 million under the oil credit facility, out of a total of $ 551 million. ADB disbursed $ 520 million during the first two months of FY 2010, primarily due to program debt. Pakistan has a budget of $ 1.7 billion in ADB funding, although it is expected to receive more than $ 2.2 billion.
The World Bank has so far released $ 65 million against an annual estimate of close to $ 1.2 billion.
The government has begun the process of hiring financial advisors to float long-term security papers in the international debt market. It plans to raise $ 3 billion by Eurobonds and Sukuk Floating.