KARACHI: Pakistan borrowed over $12 billion during the 11 months of the current fiscal year (11MFY21) – an increase of about 63 per cent compared to the same period in FY20 – reflecting the growing need for foreign exchange despite record remittances and higher exports.

During July-May FY21, the government borrowed $12.13bn compared to $7.44bn in the same period in previous fiscal year, recording an increase of $4.68bn or 62.8pc. According to the monthly data for May issued by the Ministry of Economic Affairs, unlike previous year, the government borrowed heavily during FY21 to maintain its improved foreign exchange reserves.

However, about half of the loans were borrowed as commercial loans which mean the interest would be much higher than the loans received from the Asian Development Bank (ADB), World Bank and Islamic Development Bank (IDB).

About half of the loans were commercial with higher interest rate

This higher borrowing was made despite current account surplus which was not expected before the beginning of the new fiscal FY21. During the 11MFY21, current account is still surplus with $153 million which has been a great support to the external account of the economy particularly in the presence of 29pc growth in remittances.

The borrowings from multilateral sources were $3.37bn while the commercial banks total was $3.61bn. The commercial borrowings cost heavily and debt servicing would further increase in the coming years. During the first three quarters of the FY21, the government paid $10.63bn as debt servicing while the expected total at the end of the fiscal year could be around$14bn.

Among the multilateral sources, ADB provided $1.28bn, International Development Association (IDA) $850m and IDB provided $508m as short-term finance.

Pakistan received $417m from bilateral sources. The total of multilateral and bilateral loans reached at $3.79bn during 11MFY21.

With the inclusion of $3.61bn commercial banks loans and $2.5bn euro bonds, the total public grants and loans reached at $10.89bn. The addition of publically guaranteed debt of $1.24bn made the total borrowing as $12.13bn. The grants in the total were of $231m.

The data shows that inflow of loans during the month May was around $699.7m. However, the government remained close to its target set in the budget for grants and loans.

The budget shows the inflow of grants for FY21 as $275.8m while the 11MFY21 inflow reached at $231.6m. Similarly, the loans estimate in budget was $11.96bn while it reached at $11.90bn during this period.

The government has been facing a difficult situation despite current account surplus of $153m in 11MFY21. The current account has been facing deficits for the last six months. The deficit in May was $632m indicating that June, the last month of this fiscal could see even higher deficit. Most of the payments are concluded at the end of the fiscal year that may cause bigger outflows from the country.

Published in Dawn, June 27th, 2021