The government received $6.7 billion in gross foreign loans in the first seven months of current fiscal year, including a new commercial loan of $500 million from China last month, which helped Islamabad keep its gross official foreign exchange reserves at current levels.

During the July-January period of fiscal year 2020-21, the government obtained $6.7 billion in external loans from multiple financing sources, the Ministry of Economic Affairs reported on Wednesday. The gross loans were higher by 6% or $380 million over the same period of last fiscal year.

The government also signed a new agreement worth $1.1 billion on Wednesday with the Islamic Development Bank (IDB). Total inflows in seven months were equal to 54% of the annual budget estimate of $12.2 billion for the current fiscal year.

In January alone, the government received $960 million in foreign loans, including $675 million from commercial banks, which were the most expensive loans. Out of the $6.7 billion, an amount of $2.7 billion or 41% of the total loans were on account of foreign commercial loans, said the ministry.

Nearly 87% of the foreign loans or $5.8 billion were for budget financing, building foreign exchange reserves and commodity financing.

The country would be paying back those loans after taking new loans as no revenue-generating assets were created by using the loans. Project financing was a mere $897 million or 13%.

The government received $500 million as a new loan from the Industrial and Commercial Bank of China (ICBC) in January, taking the total ICBC lending to $1 billion in the current fiscal year.

In addition to that, China provided $1 billion worth of SAFE deposit. Also, China extended $1.5 billion in trade financing facility, which was the obligation of the central bank and not counted as part of the $6.7 billion borrowing in the past seven months.

China’s continued financial assistance to Pakistan has helped in keeping the gross official foreign exchange reserves at around $13 billion despite suspension of the International Monetary Fund (IMF) programme, negative growth in exports and major debt repayments to Saudi Arabia and other creditors.

“Considering foreign exchange constraints, financing of development projects and repayments of these huge external public debts compel the incumbent government to further borrow from multiple sources,” said the Ministry of Economic Affairs.

Pakistan and the IMF have agreed to revive the stalled bailout programme, which will ensure continuity of budgetary support lending by other major lenders.

Standard Chartered Bank, London gave $100 million and a consortium of Suisse AG provided $75 million in commercial loan.

Multilateral development partners disbursed $2.9 billion in foreign economic assistance in the current fiscal year, which was equal to 55% of the annual target.

Amongst the multilateral development partners, the Asian Development Bank (ADB) provided $1.13 billion and the World Bank disbursed $834 million. The IDB disbursed $145 million last month, taking its lending to $408 million.

The economic affairs ministry said that Pakistan repaid $2.7 billion worth of foreign debt in six months, suggesting that net addition to the external public debt in the six-month period was $4 billion.

The repayments included $1.4 billion in foreign commercial loans, retirement of $760 million worth of debt of multilateral lenders and $65 million of bilateral debt. The country also retired $427 million in short-term debt of the IDB.

Pakistan on Wednesday signed a new $1.1 billion loan agreement with the IDB for a trade financing facility.

Minister for Economic Affairs Makhdoom Khusro Bakhtiar witnessed the signing ceremony of ITFC’s Annual Financing Plan 2021 for the government of Pakistan, amounting to $1.1 billion, according to a handout issued by the ministry.

The document was signed by Economic Affairs Division Secretary Noor Ahmed and International Islamic Trade Finance Corporation (ITFC) – a subsidiary of Islamic Development Bank Group – Chief Executive Officer Hani Salem Sonbol.

According to the annual financing plan, ITFC will mobilise trade financing of $1.1 billion during the year 2021.

The financing available through this facility will be utilised by Pakistan State Oil (PSO), Pak-Arab Refinery Ltd (Parco) and Pakistan LNG Ltd (PLL) for import of crude oil, refined petroleum products and LNG during 2021.

This will be helpful to augment foreign currency reserves of the country and provide resources to meet the oil import bill.

Published in The Express Tribune, February 25th, 2021.

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