ISLAMABAD: The PTI government contracted $10.447 billion worth of new foreign loans from multilateral institutions and commercial banks during the fiscal year 2019-20, almost one-fourth higher than previous year’s $8.4bn.

According to Annual Report on Foreign Economic Assistance 2019-20 released by Ministry of Economic Affairs, 99 per cent of the new commitments were for loans and the remaining 1pc in grant commitments.

Out of the total new agreements of $10.447bn, more than $6.79bn financing agreements were signed with multilateral agencies, $3.463bn with foreign commercial banks and $193 million with bilateral lenders.

The report said the high level of commercial financing worth $3.463bn — accounting for 33pc of the total new commitments — had been secured from commercial banks to refinance maturing commercial debt during the year.

Country received $10.7bn in foreign assistance during same period

Asian Development Bank (ADB) emerged as the largest lender with new commitments of 30pc, followed by World Bank 22pc, Islamic Development Bank (IDB) 7pc and Asian Infrastructure Investment Bank (AIIB) 5pc. These financial institutions extended financing of about 98pc of the total new commitments.

The report said that 69pc of the new commitments during FY2019-20 were made under the category of budgetary support. “This high level of budgetary support was secured mainly to offset socio-economic impact of Covid-19 pandemic and to meet the higher external financing requirements for external debt retirements,” it added.

About 26pc of the new commitments were allocated for project financing and 5pc for commodity financing.

The new commitments were higher than budgeted in view of the Covid-19 pandemic. An amount of $7.5bn had been committed as budgetary support, of which $4bn was committed by multilaterals as programme financing and the remaining from foreign commercial banks.

The major share (40pc) of new commitments was meant for transport & communication in FY2019-20, followed by 19pc for health, 12pc for physical planning and housing, 10pc for rural development and poverty reduction, 9pc for power sector and 6pc for agriculture.

On the other hand, the total disbursement of foreign loans in FY2019-20 amounted to $10.7bn — slightly lower than $10.8bn during same period of FY2018-19. Of these, 97pc disbursements were in the shape of loans and 3pc grants.

The disbursements included $6.5bn by multilateral and bilateral lenders as compared to $4.1bn last year, registering a growth of 59pc. In addition, the government also raised $3.4bn from foreign commercial sources to meet its external debt obligations and support balance of payments.

Disbursements of $10.7bn were mainly under the projects and programme loans or grants from multilateral, bilateral and financial institutions. This included $5.645bn or 53pc of total disbursements from the multilaterals, mainly ADB, IDB, AIIB and World Bank. An amount of $3,373m or 32pc of the total disbursements was from foreign commercial banks mainly for refinancing of maturing commercial debt. Another $1.644bn or 15pc of the disbursements was from bilateral lenders, particularly Saudi Arabia, China and the United Kingdom.

As of June 30, 2020, Pakistan’s total external public debt amounted to $77.9bn, compared to $73.4bn during the same period last year, showing a growth of 6pc.

The report showed total external public debt from three key sources — 51pc multilateral debt, followed by 31pc bilateral debt, including China’s SAFE deposits, and the remaining 18pc from foreign commercial banks and institutions, including Eurobonds and Sukuk.

After accounting for total repayments and fresh disbursements, net transfers to the government during FY2019-20 amounted to $1.8bn. The report said the stock of external loans obtained via market-based instruments declined by $2.062bn in bonds and commercial borrowing and the share of concessional external loans with longer maturity increased by $3.87bn in multilateral and bilateral loans, showing a relative improvement in external public debt stock.

The report said the net transfers had remarkably declined after 2018. “Despite elevated level of external debt servicing, Pakistan has successfully discharged its record debt servicing during FY2019-20 by successfully mobilising external resources and shifting focus from short-term commercial high-cost liquidity to long-term concessional flows,” it said, claiming credit for prudent external debt management and growing confidence of lenders.

The economic affairs ministry said that about 70pc of the total external public debt consisted of loans on fixed interest rates as of June 30, 2020, while the remaining 30pc loans were obtained on floating interest rates.

Fixed interest rates are fully predictable interest payments and pre-defined amortisation schedule. In contrast, floating interest rate is anchored to the prevailing market conditions and is usually indexed with London Inter-Bank Offered Rate (Libor). Interest payments of floating rate debt change according to the change in the prevailing Libor rates.

During FY2019-20, Pakistan paid $10.4bn on account of debt servicing of external public loans, including principal payment of $8.5bn and $1.9bn in interest payments.

Published in Dawn, December 12th, 2020