Foreign loans worth $10.7 billion taken on in FY19-20

ISLAMABAD: Pakistan's reliance on foreign commercial loans increased last fiscal year, with total external loan inflows worth $10.7 billion recorded in the year ended June 30, 2020. 

The Annual Report on Foreign Economic Assistant (FEA) for FY19-20 showed $6.5 billion of the total was disbursed by multilateral and bilateral development partners — a year-on-year increase of 59%. 

Additionally, the government raised $3.4 billion through foreign commercial loans to meet external debt obligations and support the balance of payments. 

The total budgetary support component, $4.6 billion, was programme support and the remaining $3.3 billion was arranged as re-financing by the Finance Division from various foreign commercial banks.

The report stated that 97% of the total $10.7 billion in inflows were accounted for as loans, while 3% were grants. Of the total disbursement, 53% [$5,645 million] came from the Asian Development Bank (ADB), Islamic Development Bank (IsDB), Asian Infrastructure Bank (AIB) and the World Bank (WB). 

Foreign commercial banks accounted for 32% ($3,373 million), while 15% ($1,644 million) was given by bilateral development partners, including the Kingdom of Saudi Arabia, China and the United Kingdom. 

After commercial banks, the ADB disbursed the largest amount of $2,824 million. 

The report shows 74% of the total disbursement was for 'financing and budgetary support' while 19% was for 'project financing' and the remaining 7% for 'commodity financing', mainly from the IsDB to purchase crude oil. 

The transport and communication sectors received the largest chunk at 32%; the rural development, poverty alleviation and education sectors received 11% each; the energy and power sector 10%; and healthcare 9%.

"Increased level of inflows from our multilateral and bilateral development partners is indicative of their commitment to support development priorities of the government as well as strengthening of institutional capacity to implement the reforms in the priority areas of revenue, fiscal management, debt management, public sector enterprises, energy sector reforms and ease of doing business," the report said.

"These inflows are long-term and on concessional terms with lower cost, which is a reflection of healthy composition and quality of our external public debt," it added.

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External public debt

As of June 30, 2020, Pakistan’s total external public debt stood at $77.9 billion. The external public debt was $73.4 billion last year, therefore reflecting growth of 6%. 

As of the same date, 70% of total external public debt consists of loans on fixed interest rates, while the remaining 30% has been obtained on floating interest rates. 

The government repaid an amount of $10.4 billion during FY 2019-20 on account of debt servicing of external public loans. That consisted of a repayment of principal of $8.5 billion and interest payments of $1.9 billion. 

For the period under review, net transfers to the government were $1,810 million. A positive net transfer reflects that during the period, the government retired less loans in comparison to taking on new loans. 

Interestingly, the stock of external loans which was obtained via market-based instruments has declined by $2,062 million (bonds and commercial borrowing) and the share of concessional external loans with longer maturity increased by $3,871 million (multilateral and bilateral loans). This indicates a qualitative improvement in external public debt stocks.

"Despite the elevated level of external debt servicing, Pakistan has successfully discharged its record debt servicing during FY 2019-20 by successfully mobilizing external resources and shifting focus from short-term commercial high-cost liquidity to long-term concessional flows. 

"This also reflects the prudent external debt management by the government and growing confidence of our development partners," the report concluded.

Government's reaction

Taking to Twitter, Federal Minister for Industries Hammad Azhar pointed out that the country paid $10.4 billion on account of debt servicing of external public loans including principal payment of $8.5 billion and $1.9 billion in interest payments. 

"The PTI government is conducting the highest external debt repayment and servicing ever done by any government," he wrote.

"Despite this high debt retirement, pace of external debt rise is slower than during the last years of PML-N government. And foreign exchange reserves are also rising."