ISLAMABAD: The PTI government issued new foreign loans worth USD 10.447 billion from multilateral institutions and commercial banks in the 2019-20 financial year, almost a quarter more than in the previous year (USD 8.4 billion).
According to Annual report on foreign trade assistance 2019-20 99 percent of the new commitments released by the Department of Commerce were for loans and the remaining 1 percent for grant commitments.
Of the total of $ 10.447 billion in new agreements, more than $ 6.79 billion were signed funding agreements with multilateral agencies, $ 3.463 billion with foreign commercial banks, and $ 193 million with bilateral lenders.
According to the report, the high level of commercial funding of $ 3.463 billion, which represents 33 percent of total new commitments, was secured by commercial banks to refinance commercial debt due during the year.
The country received US $ 10.7 billion in foreign aid over the same period
The Asian Development Bank (ADB) has become the largest lender with 30%, followed by the World Bank with 22%, the Islamic Development Bank (IDB) with 7% and the Asian Infrastructure Investment Bank (AIIB) with 5%. These financial institutions have extended the financing of around 98 percent of all new commitments.
The report states that 69 percent of new commitments in FY2019-20 were made under the budget support category. “This high level of budget support has been secured mainly to offset the socio-economic impact of the Covid-19 pandemic and to meet the higher external funding requirements for external deleveraging,” he added.
About 26 percent of the new commitments were made available for project finance and 5 percent for raw material finance.
The new commitments were higher than planned in view of the Covid-19 pandemic. An amount of US $ 7.5 billion was provided as budget support, of which US $ 4 billion was provided by multilaterals as program funding and the remainder by foreign commercial banks.
The majority (40 percent) of the new commitments were for transport and communications in the 2019-20 financial year, followed by 19 percent for health, 12 percent for physical planning and housing, 10 percent for rural development and poverty reduction, and 9 percent for the energy sector and 6 percent for agriculture.
On the other hand, total foreign loan disbursements in FY2019-20 were $ 10.7 billion – slightly less than $ 10.8 billion in the same period in FY2018-19. 97 percent of this was for loans and 3 percent for grants.
Disbursements were $ 6.5 billion from multilateral and bilateral lenders compared to $ 4.1 billion last year, up 59 percent. In addition, the government raised $ 3.4 billion from overseas commercial sources to meet its external debt obligations and support the balance of payments.
Disbursements of $ 10.7 billion were primarily for projects and program loans or grants from multilateral, bilateral and financial institutions. This included $ 5.645 billion or 53% of total disbursements from multilateral corporations, mostly ADB, IDB, AIIB and World Bank. An amount of US $ 3,373 million, or 32% of the total disbursements, came from foreign commercial banks, primarily to refinance due business debt. Another $ 1.644 billion, or 15% of the disbursements, came from bilateral lenders, particularly Saudi Arabia, China and the United Kingdom.
As of June 30, 2020, Pakistan’s total external debt was $ 77.9 billion, compared to $ 73.4 billion for the same period last year, an increase of 6 percent.
The report showed total public external debt from three main sources – 51 percent multilateral debt, followed by 31 percent bilateral debt, including China’s SAFE deposits, and the remaining 18 percent from foreign commercial banks and institutions, including Eurobonds and Sukuk.
After accounting for total repayments and repayments, net transfers to the government for fiscal 2019-20 were $ 1.8 billion. According to the report, the holdings of external borrowing through market-based instruments decreased by $ 2.062 billion in bonds and commercial loans, and the proportion of franchised longer-term external loans increased by $ 3.87 billion in multilateral and commercial loans bilateral lending, which shows a relative improvement in the external public debt.
The report said that net transfers decreased significantly after 2018. “Despite the increased level of external debt servicing, Pakistan successfully replaced its record debt servicing in FY2019-20 by successfully mobilizing external resources and shifting the focus from short-term, high-cost commercial liquidity to long-term concession flows,” it said, calling for credit for prudent external debt management and that growing lender confidence.
The Ministry of Economic Affairs said that as of June 30, 2020, around 70 percent of total foreign debt consisted of fixed-rate loans, while the remaining 30 percent was borrowed at floating rates.
Fixed rates are fully predictable interest payments and pre-defined repayment schedules. In contrast, the floating rate is tied to prevailing market conditions and is usually indexed using the London Inter-Bank Offered Rate (Libor). Interest payments on floating rate debt will change in line with changes in the applicable Libor rates.
In fiscal 2019-20, Pakistan paid $ 10.4 billion on debt servicing on external government loans, including a principal payment of $ 8.5 billion and interest payments of $ 1.9 billion.
Posted in Dawn on December 12, 2020