Pakistan receives $9.53bn in foreign loans

ISLAMABAD: Pakistan authorities could materialise about $6.68 billion in foreign economic assistance (FEA) in the first eight months of the current fiscal year, almost 38pc of the annual budget target.

The borrowing avenues remained limited in the wake of poor credit rating and adverse conditions in the global financial markets despite the support of the International Monetary Fund (IMF), the Ministry of Economic Affairs said on Thursday.

This FEA is in addition to $1.9bn released by the IMF out of the $3bn Stand-By Arrangement (SBA) and $1bn by the United Arab Emirates that is separately accounted for by the State Bank of Pakistan (SBP). Thus, total foreign inflows including IMF and UAE amounted to $9.53bn in the July-February period. This generally works out to be almost 54pc of the full-year targeted inflows.

However, the authorities now claim that better debt and trade management has reduced the current year’s foreign assistance requirements. Thus its target is now tentatively revised to around $11bn instead of the $17.62bn set in the 2023-24 budget for FEA.

Ministry claims inflows below target reflect better debt management

They are now predicting the current account deficit to be around $2bn instead of about $6bn budget estimate.

In its monthly report on Foreign Economic Assistance (FEA), the Economic Affairs Division (EAD) on Thursday said the country received $6.68bn in the first eight months of FY24 against its annual target of $17.62bn including $235m in grants.

This meant foreign inflows were almost 10pc lower when compared to $7.4bn of the same period last fiscal year which was otherwise a very tough period given the challenging relationship with the IMF.

The low inflows were mainly because of the adverse international environment and the country’s poor credit rating, making international capital markets a no-go area for Pakistan. Therefore, Pakistan has deferred its plan to launch a $1.5bn Eurobond because of higher interest rates in the international capital markets and the country’s low credit rating.

The EAD report showed that besides the $1.5bn in fresh bonds, the government had also budgeted another $4.5bn in foreign commercial loans for the current fiscal year but not materialised as the current account deficit declined.

Total inflows recorded by the EAD in February came in at $333 million compared to $331m in January and $1.62bn in December. It may be noted that December 2023 had seen three larger disbursements by three major multilaterals — $638m by the World Bank, $469m by the Asian Development Bank and $255m on by the Asian Infrastructure Investment Bank (AIIB).

In October, the country had received $318m in foreign inflows and $321m in September. Major FEA during the first eight months flowed in at $2.89bn in July 2023 soon after Pakistan reached an agreement with the IMF for a fresh short-term programme.

Strangely, the EAD had accounted $1.16bn receipt from the IMF in the last fiscal year into its FEA inflows but did not depict similar $1.9bn inflows this year. Interestingly, the EAD had projected $3bn from IMF last year but only $1.16bn could be materialised following the derailment of its programme soon after the exit of former finance minister Miftah Ismail.

For the current year, the EAD had budgeted $2.4bn from the IMF which later actually committed $3bn in the wake of the signing of a fresh programme that would come to an end in April. The fund has now already disbursed about $1.9bn, leaving behind only $1.1bn to be released by the end of next month.

The bulk — $2.6bn — of foreign loans reported by the EAD in eight months came from Saudi Arabia as a time deposit and oil facility followed by $1.375bn from the World Bank, $643m from ADB and a $508m guaranteed loan to Pakistan Air Force (PAF) by China National Aero-Technology Import & Export Corporation.

Total inflows from multilateral lenders excluding IMF stood at $2.635bn in the first eight months of 2023-24 against $3.46bn in the same period last year.

Inflows from all bilateral lenders, excluding Saudi Arabia, stood at $848m in eight months. Another $687m flowed in from overseas Pakistanis in Naya Pakistan Certificates (NPCs).

The EAD said that out of $6.678bn, the bulk of $4.63bn was received for budgetary support or programme loans and about $2.05bn as project aid.

The government had budgeted $22.8bn foreign assistance in FY23 but could materialise only $10.8bn throughout the year — about 46pc of the target — because of the suspension of the IMF programme, leaving a $11.8bn slippage, resulting in depletion of foreign exchange reserves.

Published in Dawn, March 22nd, 2024