Budget 2020-21: Pakistan's external financing need goes up to $29.3 billion

Web Desk

June 06, 2020

ISLAMABAD: Amid decreasing non-debt creating dollar inflows in upcoming budget, Pakistan’s gross external financing requirement is expected to jump up from $25 billion in outgoing fiscal to at least $29.3 billion in next financial year 2020-21, it is learnt.

The budget makers are worried in the aftermath of outbreak of coronavirus and its persistence in the country because it might result into decreased non- debt creating dollar inflows into Pakistan in next fiscal year such as foreign direct investment, fetching exports earnings and remittances so Islamabad will be forced to increase its reliance on foreign loans to meet its financing gap on external account.

The decreased oil prices in international market is real bonanza for our economy but if it rebounded on higher side then the trade balance might further worsen and demand for dollar for bridging financing gap might further escalate. This is the potential risk identified by the budget makers, said the official sources.

“The gross external financing needs might cross $30 billion mark in the next fiscal budget for 2020-21 against projected estimates of $25 billion in outgoing fiscal year” top official sources confirmed to The News here on Friday.

The International Monetary Fund (IMF) has estimated that Islamabad’s gross financing needs will be standing at $29.3 billion in the next budget. The debt repayment on account of total external debt and liabilities is estimated to consume $13.8 billion in the coming budget 2020-21.

The macroeconomic framework approved prepared by Planning Commission and approved by the Annual Plan Coordination Committee (APCC) envisages that the current account deficit is targeted at $4.4 billion for next fiscal year. The exports are targeted to fetch $22.7 billion in next fiscal year against initially envisaged pre COVID-19 target of $26.187 billion for outgoing fiscal year, indicating that the exports might decrease by $3.487 billion. The imports were targeted at $42.142 billion in the next budget against revised estimates of $41.9 billion for the outgoing fiscal year. The remittances are going to face major hit as the government expects to receive $21.5 billion remittances from Pakistanis living abroad in next fiscal year against initially envisaged target of $24.030 billion in outgoing fiscal year ending on June 30, 2020.

The Ministry of Finance has estimated that the government will have to get foreign loans of $14 to $15 billion in the next budget while repayment of public debt is going to consume $11 billion. So net external borrowing will be standing around over $4 billion in the next budget.

The IMF has estimated that the current account deficit would be hovering around $6.5 billion in the next budget but Ministry of Finance is pitching it at $5.5 billion on maximum side at the moment. The government also plans to launch Eurobond to generate $1.5 billion in the next fiscal year. The government also decided to rollover the commercial loans instead of seeking new one but all will depend upon the yawning budget deficit and its financing requirement for the current fiscal year.

So far the Ministry of Finance has estimated that total debt servicing requirement would be standing at Rs3,150 billion for the next budget. One top official argued that the government managed T-bills for 6 months to one year instead of 3 months so the debt servicing requirement will go up these debt instruments got matured by next fiscal year. Although the discount rate had decreased but the debt servicing requirement is still on higher side size of loan portfolio increased manifold. The buffer created by the government within the SBP to the tune of over Rs1 trillion is also under severe criticism because it is ballooning debt servicing bill.