*KARACHI: *The pace of foreign loan accumulation grew in 2017 as Pakistanacquired $6.9 billion during the year in a bid to finance swelling importsand repay external debt following failure to bridge the fiscal deficit dueto low exports and insignificant increase in worker remittances.
The $6.9-billion borrowing is the single largest annual accumulation ofexternal debt in the past four years, according to the State Bank ofPakistan’s second quarter report on the state of economy, Tribune hasreported.
With this addition, the total public debt reached $66.9 billion by the endof 2017.
The fresh debt included the $669.3 million that was added due to weakeningUS dollar against other major international currencies and rupeedepreciation against the dollar in the first half (July-December) of thecurrent fiscal year 2017-18.
However, the total debt of $66.9 billion did not include the debt servicingcost of $2.27 billion in the half year.
“In public debt (addition of Rs1.4 trillion in the first half of FY18),major increase came from the external component, caused by higher externalborrowing, revaluation losses due to rupee depreciation against the USdollar and appreciation of other currencies against the US dollar,” thecentral bank said in the report.
Pakistan’s stock of external public debt rose $4.3 billion in the firsthalf of FY18, reaching $66.9 billion at the end of December 2017.
“Despite higher repayments, the increase in external debt was largely dueto $2.5 billion mobilised through Eurobond/Sukuk issuance and borrowingfrom commercial banks during the period,” it said.
In addition to this, strengthening of other currencies against the dollarresulted in $669.3 million worth of revaluation losses. Specifically, thedollar weakened against the euro and Special Drawing Rights (SDR) by 4.9%and 2.3% respectively, which added significantly to the dollar value ofPakistan’s external debt.
Gross loan disbursements increased 44% to $5.69 billion in the first halfof FY18. “Around two-thirds of the inflows came from bond issuance (worth$2.5 billion) and government borrowing from foreign commercial banks ($1.16billion),” it said.
In addition to the commercial borrowing, the support from multilateraldonors came largely for energy and infrastructure projects.
Within bilateral loans, major inflow came from China ($506.9 million) whichwas meant for infrastructure projects under the China-Pakistan EconomicCorridor (CPEC).
The central bank, however, pointed out that the Eurobond/Sukuk issuance wasoversubscribed by more than $8 billion. The investor base was also quitediversified with 44% from Europe, 24% from Asia, 20% from North America, 8%from the Middle East and 12% from other regions.
Encouragingly, the rate of return on 10-year bonds was lower compared withthe fixed-rate bonds issued over the past 10 years. This development bodeswell in terms of lengthening the maturity profile, cost effectiveness andinterest rate risks on the external debt portfolio.
The servicing of external public debt was higher by $720.2 million to $2.27billion in the first half of FY18 compared to $1.55 billion in the sameperiod of last year.
“The main servicing burden was due to repayment of foreign commercial loansthat reached around $537.4 million during 1HFY18. In addition, therepayment to the Paris Club and other multilateral donors also increasedsignificantly during the period,” it said.