Finance

Pakistan to Get $4.6 Billion in New Foreign Loans

Pakistan has secured nearly $4.6 billion in fresh foreign loans over the course of past seven months amid declining foreign currency reserves.

According to the figures released by the Ministry of Finance and Economic Affairs, the foreign economic assistance from July through January, has been standing at a whopping $4.57 billion. The amount includes debts amounting to around $2.3 billion for budgetary purposes, and balance of payments assistance.

The $2.3 billion loans include $1 billion in Sukuk Bonds, which were floated by pledging the Lahore-Islamabad Motorway, and the rest $1.2 billion have been loaned from foreign commercial banks. Both these loans have been aimed at offsetting the decline in foreign currency reserves and meeting budgetary demands.

It is noteworthy that the $4.6 billion foreign borrowings make up 57 percent of the total $8 billion annual financial assistance that the government had projected to receive during the current financial year (2016-17).

Capital-Investment Imbalance

In September 2016, Pakistan secured $700 million from China Development Bank in order to avert a balance of payment crisis. The Industrial and Commercial Bank of China pledged another $600 million loan for meeting budgetary needs and balance of payment requirements.

Out of the allocated amount, the Chinese bank disbursed $300 million last month, official documents revealed. Nevertheless, the flow of loans from China is increasing much faster than its investment under China-Pakistan Economic Corridor (CPEC).

Between the period of September 2016 to January 2017, Pakistan obtained loans worth almost $1.9 billion from China. Of these loans $1 billion have been at commercial terms while $857 million have been for project financing.

Moreover, higher-than-projected trade deficit has also increased the government’s reliance on foreign borrowings to meet its external account requirements. The country will have to return $6.5 billion principal public debt to foreign creditors in the next fifteen months alone, according to the Finance Ministry’s statement.

State Bank’s Foreign Currency Reserves

After hitting a new peak mark of $19.5 billion, State Bank’s official foreign currency reserves dropped to $17 billion. The decline has mainly been attributed to a sluggish export performance and increase in foreign debt repayments in the recent years.

Foreign Grants/Loans

Lately, Pakistan has secured $709.8 million and $242 million from Asian Development Bank (ADB) and Islamic Development Bank (IDB) respectively. Meanwhile, the United Kingdom disbursed $131.7 million in grant for social welfare and education reforms. The United States provided $51.8 million in seven months.

It’s interesting to note that Pakistan did not obtain any loan or grant from these traditional bilateral and multilateral donors: France, South Korea, Norway, Oman, Saudi Arabia, Organization of Petroleum Exporting Countries (OPEC) and European Union.

image: shutterstock

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