Foreign loan target missed amid major slippages

• Pakistan receives $9.8bn in July-March, against annual target of $17.4bn
• Low inflows mainly due to adverse global environment, poor credit rating

ISLAMABAD: Pakis­tan received only about $9.8 billion in foreign loans and grants in the first nine months (July-March) of the current fiscal year, far behind the annual target of $17.4bn, amid major slippages in raising international financial support.

The disbursements app­e­ared to be slowing down as the country rec­eived less than $204 million in foreign loans in March compared to $318m in February, acc­ording to official data.

The Ministry of Econ­o­mic Affairs (MEA) on Tuesday said the government could materialise about $6.899bn in foreign economic assista­nce (FEA) in the first nine months of the current fiscal year, almost 39pc of the annual budget target, amid limited borro­wing avenues in the wake of poor credit rating and adverse conditions in the global financial markets des­pite the support of the Interna­tional Monetary Fund (IMF).

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 from the IMF and the UAE, amounted to $9.799bn in nine months. This generally works out to be almost 55.6pc of the full-year targeted inflows.

However, the authorities now claim that better debt and trade management have reduced the current year’s foreign assistance requirements. Therefore, its target is now tentatively revised to around $11bn instead of the $17.62bn set in the 2023-24 budget for FEA. They are now predicting the current account deficit to be around $2bn instead of about $6bn budget estimate.

In its monthly FEA report for March, the MEA said the country received $6.899bn in the July-March period against its annual target of $17.62bn. This meant foreign inflows were over 11pc lower than the $7.8bn 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 due to the adv­erse international environment and Pakistan’s poor credit rating, which make 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 Economic Affairs Division (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.

Total inflows recorded by the EAD in March came in at $218m compared to $333m each in January and February and $1.62m in December.

December 2023 saw three larger disbursements by three major multilaterals — $638m by the World Bank, $469m by the Asian Development Bank, and $255m by Asian Infrastructure Investment Bank (AIIB).

The country received $318m in foreign inflows in October and $321m in September. Major FEA during the first nine 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 Economic Affairs Division had budgeted $2.4bn from the IMF which later actually committed $3bn in the wake of signing of the SBA, which is ending later this month. The Fund has now already disbursed about $1.9bn, leaving behind only $1.1bn to be released this month.

The bulk, or $2.63bn, of foreign loans reported by the EAD in July-March came from Saudi Arabia as a time deposit and oil facility, followed by $1.428bn from the World Bank, $665m from the ADB and a $508m guaranteed loan to Pakistan Air Force (PAF) by China National Aero-Technology Import and Export Corporation. Total inflows from multilaterals, excluding IMF, stood at $2.738bn in the nine months compared to $4bn a year ago.

Inflows from all bilateral lenders, excluding Saudi Arabia, stood at $964m in the nine months. Another $781.5m flowed in from overseas Pakistanis in Naya Pakistan Certificates.

The government has estimated about $17.62bn in foreign assistance in the budget for the current fiscal year,

including $17.385bn in loans and the remaining $235m in grants. As such, total loan disbursements in the first nine months stood at $6.899bn and $123m in grants.

The EAD said that out of $6.899bn, the bulk of $4.7bn was received for budgetary support or programme loans and about $2.174bn as project aid.

During the last fiscal (FY23), the government had budgeted $22.8bn foreign assistance 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.

Unlike previous years, Pakistan could tap only three major sources of foreign inflows during the last fiscal year, and the trend continued in the first eight months of the current fiscal year as well. These included bilateral and multilateral lenders and overseas Pakistanis through Naya Pakistan Certificates.

This also showed that private commercial banks that had shied away in the absence of the IMF programme last year had not returned to Pakistan so far, as the eight-month inflows remained zero against the full-year budgetary target of $4.5bn.

Published in Dawn, April 24th, 2024