ISLAMABAD: The government has decided to reduce its reliance on foreign loans and grants in the upcoming fiscal year as it plans to borrow Rs2.22 trillion for budgetary support compared to Rs3.03tr in the last fiscal year, the budget document showed on Friday.

In the last fiscal year, the government had estimated to borrow Rs3.032tr in loans and grants from international donors and foreign countries. However, by the year end, total external borrowing was curtailed to Rs2.27tr.

During the outgoing fiscal year, the government had estimated massive increase in foreign loans amounting to Rs2.502tr for budgetary support, but several of the planned measures did not materialise.

Contrary to initial plans, the government did not issue Rs450 billion Eurobond. However, it plans to raise Rs247.5bn from the bonds in the upcoming fiscal year.

Similarly, planned inflow of Rs750bn as “Budgetary Support from Friendly Countries” was skipped in the outgoing fiscal year. The government does not plan to seek such support in next fiscal year.

Moreover, of the planned Rs480bn due under the Saudi oil facility, the government only availed Rs183.84bn in the outgoing fiscal year. The government plans to utilise Rs165bn through the Saudi oil facility in the FY2020-21.

On the flipside, in the outgoing fiscal year, the International Monetary Fund (IMF) loan for budgetary support increased to Rs456.65bn against the projected target of Rs357.45bn. The government projects to borrow another Rs211.06bn from the IMF as budgetary support in the next fiscal year.

Other planned loans in the coming fiscal year include Rs165bn from the Islamic Development Bank and Rs647.21bn from various commercial banks.

The budget document said the aim and objective of foreign or external financial assistance is to promote economic and social development in the country.

As many developing countries do not have sufficient funds to provide public goods such as education or transportation systems or clean water and waste disposal facilities, foreign loans can help in appropriate productive capacity, increase output and allow debt and interest to be repaid.

However, if the same loans are used to finance current account deficits/consumption, it does not translate into economic growth and become a burden. Ministry of Finance said that if loans are not utilised productively and efficiently, developing countries are likely to face financial crises and get caught up in debt traps.

The federal government has also decided to curtail project loans for public sector entities, ministries and corporations in the next fiscal year to Rs66.82bn, down from Rs143.13bn in the outgoing year.

However, the provinces have enhanced their target of project loans from foreign lenders to Rs151.33bn compared to Rs71.60bn received during the FY2019-20.

Similarly, provinces are also expected to receive grants from foreign sources at Rs15.01bn in the next fiscal year, while the federal ministries and autonomous bodies are likely to receive grants worth Rs5.65bn for various projects.

Published in Dawn, June 13th, 2020