ISLAMABAD: Despite healthy remittances and higher exports, Pakistan borrowed about $14.3 billion to build foreign exchange reserves in recently concluded fiscal year (FY21), 34 per cent higher than a year earlier.

The Ministry of Economic Affairs reported on Monday that the government received $14.283bn foreign loans during the fiscal year 2020-21, compared to $10.66bn in 2019-20, showing an increase of 34pc.

The total foreign loans surpassed by 17pc the target of $12.233bn set in the budget 2020-21, indicating higher foreign exchange needs to finance imports and earlier loans. The major chunk of $8.2bn was secured through non-traditional multilateral and bilateral lenders even though the targeted $1bn loan from Saudi Arabia could not materialise during the year. The gap was filled by securing Chinese loan of the equivalent amount that was not part of the original budget estimates.

Borrowing of $14.28bn indicates higher foreign exchange needs to finance imports, earlier loans

Also, the government secured $2.5bn through international bonds against a budget target of $1.5bn. These included Eurobonds of $1bn for 10-year maturity, $500 million for 30 years and $1bn for five-year bond maturing in 2026. On top of that, the government also obtained $4.7bn commercial loans from international banks against a budget target of $3.9bn.

All these commercial loans were arranged for budgetary support and included $200m each of four loans from Standard Chartered Bank London, $275m from Suisse AG-UBL, $400m from Ajman Bank, $825m from Dubai Bank, $370m from Emirates NBD, $1bn (two loans of $500m each) from Industrial & Commercial Bank of China (ICBC) and $2bn (two loans of $1bn each) from the Chinese government and China Development Bank.

The government missed its budget target of multilateral lending by almost one billion dollars owing to lower disbursements by the Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), Islamic Development Bank, World Bank Group, etc. These multilaterals together disbursed $4.37bn during FY21 against budget estimates of $5.354bn. These loans do not include $500m disbursed by the International Monetary Fund (IMF) in April 2021 which is separately accounted for in central bank’s accounts.

The disbursements from traditional bilateral lenders were almost on track at $453m against budget estimates of $457m.

The lower than targeted disbursements by the multilaterals — ADB, World Bank and AIIB — and resultant higher borrowing from commercial banks and bonds meant that Pakistan had to swallow significantly higher interest rates. For example, the three Eurobonds were launched at an interest rate of 6-8.88pc against the multilaterals’ cost of roughly 1-2pc.

The ministry’s data showed that the size of foreign loans had steadily increased over the past three fiscal years from $10.59bn in FY19 to $10.662bn in FY20 and then reaching $14.28bn in FY21 despite favourable current account situation supported by robust remittances from overseas Pakistanis. The country received about $2.115bn in foreign loans. Of this, a major chunk of $1.1bn was secured from commercial banks and $966m from multilateral institutions.

During FY20, the government had secured $10.662bn of total external inflows from multiple financing sources which was 82pc of annual budget estimates of $12.958bn for that year. The gap between the budgetary target of $13bn and actual inflows of $ 10.6bn in FY20 was primarily because the government was unable to issue Eurobonds amounting to $3bn in the international capital markets.

Published in Dawn, July 20th, 2021