ISLAMABAD – Pakistan has planned to borrow a record-breaking $13 billion inthe next fiscal year alone, nearly 63% higher than the outgoing fiscalyear’s original estimates, meant largely to repay previously obtained loansand stabilise nose-diving foreign currency reserves.
The provisional estimate to borrow $13 billion has been prepared for thebudget 2018-19 the PML-N government wants to unveil on April 27, saidsources at the Ministry of Finance. If the plan materialises, it will bethe highest borrowing in a single year in Pakistan’s 71-year history.
In fiscal year 2016-17, Pakistan borrowed $10.4 billion. However, it hasnot yet confirmed whether the government will present a realistic plan ofForeign Economic Assistance in parliament on April 27 or like previous fiveoccasions, it will understate the foreign borrowing plan.
The estimated foreign borrowings for fiscal year 2018-19 are $5.1 billionor 63% higher than the original estimates for fiscal year 2017-18. Formerfinance minister Ishaq Dar had presented only $8 billion as the foreignborrowing plan in parliament for the outgoing fiscal year. However, thegovernment has already borrowed $7.3 billion in just eight months.
The plan does not include borrowings from the International Monetary Fund(IMF), as at this stage the outgoing government does not want to availanother bailout. It has relied heavily on extensive foreign borrowings toremain afloat, as the government has failed to attract non-debt creatingforeign inflows.
During its first four and a half years, the PML-N government took over $40billion in foreign loans, throwing the country deep into debt.
The IMF has recently projected that Pakistan’s external debt andliabilities will peak to $93.2 billion by June this year, which in 2013,when the PML-N took over, were nearly $61 billion. The government will haveadded over $32 billion in five years.
For the next year, a majority of the loans, amounting to $4.7 billion, hasbeen estimated to be received from three multilateral agencies – the WorldBank, the Asian Development Bank (ADB) and the Islamic Development Bank(IDB). The ADB loans for next fiscal year are estimated at $1.1 billion,the IDB loans at $1.5 billion and the World Bank at $2.02 billion. TheWorld Bank’s loan estimates appear unrealistic, as the lender is unlikelyto give huge sum without the IMF umbrella.
From bilateral sources, Pakistan expects $3.5 billion in loans in the nextfiscal year, said sources. This included $2.9 billion from China alone,which in recent years has become the country’s single largest helper.
Pakistan also plans to float $3 billion worth of Euro and Sukuk bonds,partly to repay the previous loans obtained by the PML-N. In April 2014,the PML-N government had raised $1 billion for five years at a fixed rateof 7.25% through the Eurobond. This bond will mature next fiscal year.
The government also plans to take $2 billion foreign commercial loans,which remains its favourite tool in past five years to relieve pressurefrom the external account.
These loans will help meeting external financing needs and cushion foreigncurrency reserves, sources added. Official gross foreign currency reservesare already close to $11.5 billion, which the IMF believes would slip to$9.3 billion by June this year, provided the government remains unable tocontract sufficient foreign loans.
“An elevated current account deficit and increased external obligations areexpected to double external financing needs in the medium term, taking afurther toll on foreign exchange reserves,” according to the IMF’s recentreport on Pakistan’s economy.
It added that a higher current account deficit and rising external debtservicing are expected to lead to higher external financing needs, whichcould increase to $27 billion in fiscal year 2018-19.
The IMF has projected that in the next fiscal year Pakistan’s currentaccount deficit could be as high as $4.4% of GDP.