ISLAMABAD: Pakistan plans to obtain $8.1 billion new loans in next fiscal year for project and budget financing – 27 per cent or $3 billion – less than the revised budget estimates for the outgoing year, suggesting that the government is not telling its exact borrowing plan to parliament.
The Finance Ministry estimated receiving $8.1 billion – or Rs853 billion – in foreign economic assistance for fiscal year 2017-18, said sources in the ministry. New loans will be obtained to return a few previous loans and to finance projects of federal, provincial and autonomous bodies.
Just as the outgoing fiscal year’s original budget estimates of $8 billion, the plan for the new year also appears highly unrealistic in view of the country’s higher foreign financing requirements.
The Foreign Economic Assistance plan for 2017-18 will be tabled in parliament on Friday when Finance Minister Ishaq Dar will present his government’s fifth budget.
For fiscal year 2016-17, the government had budgeted $8 billion in foreign loans, but it has now revised the estimates upwards. New estimates showed that actual foreign borrowings might even cross the $11-billion-mark, sources said. If the revised borrowing plan materialises, this will be the highest-ever borrowing in a single year in the country’s history.
The Finance Ministry had to borrow more to fulfil external sector requirements after Coalition Support Fund disbursements, foreign remittances and exports receipts fell far below expectations.
This will also be the first time in years when the country will receive $3 billion or 38.5 per cent more than the original budgetary estimates, pointing towards issues that bar the authorities from projecting the exact foreign financing requirements at the time of making budget.
The sources said that the finance ministry did not want to make the exact financing requirement public to avoid criticism and exploitation by foreign lenders.
The main reasons behind $3 billion additional borrowing in the outgoing fiscal year were mounting foreign debt repayments and interest requirements. The additional $3 billion are primarily originating from China – the country’s new lifeline after change of mood in Washington.
Sources in the Q-Block said that against original estimates of $572 million, China is expected to disburse $2 billion in the outgoing fiscal year. Another source of additional foreign loans is commercial banks and again a major chunk is coming from Chinese banks.
For the outgoing fiscal year, the government had budgeted $2 billion loans by foreign commercial banks. But revised estimates show that we may end up taking $3.7 billion worth foreign commercial loans, said the Finance Ministry sources. About 62 per cent of foreign commercial loans – $2.3 billion to be precise – are coming from Chinese financial institutions.
Industrial and Commercial Bank of China gave $300 million, the China Development Bank is expected to provide $1.7 billion, including $1 billion coming this month, and the Bank of China is likely to give $300 million.
The country would obtain $700 million foreign commercial loans under World Bank Policy Based guarantees. It is also seeking another $300 million foreign commercial loans before the end of next month, said the sources.
About one-fifth of new loans, or $1.6 billion, would be obtained from China for project financing. This will be the highest contribution by any single source, followed by $1.56 billion by the Islamic Development Bank (IDB). IDB loans will be expensive, as the country again intends to use this short-term facility.
The World Bank will provide $1.34 billion or $16.6 per cent of the estimated new loans, said sources in the Finance Ministry.
Pakistan also plans to issue $1 billion worth of Eurobonds in the next fiscal year, besides obtaining another $1 billion in foreign commercial loans, said the sources.
They said that in the next fiscal, foreign commercial borrowings may again remain higher than the estimates.
Because of growing public debt, which has limited the country’s repayment ability, the government gets such short-term borrowings rescheduled each year.
The Asian Development Bank (ADB) is expected to provide $1.2 billion or 15 per cent of the estimated foreign economic assistance, said the sources.
The borrowings from other traditional sources would not be very significant and the countries such as Saudi Arabia, Kuwait, Japan and European nations would not contribute much except France which is giving $157 million next year, said the sources.
The United Kingdom may provide $115 million grant in the next fiscal year, said the sources. The United States contribution on account of Kerry-Lugar aid is estimated at $118 million, said the sources.
Of $8.1 billion, $1.84 billion would go to the provinces for development projects, said the sources. Punjab will get $1.1 billion, followed by Sindh $400 million, Khyber-Pakhtunkhwa $280 million and Balochistan nearly $60 million.
Autonomous bodies will get $1.35 billion loans, primarily the National Highway Authority (NHA) $810 million, PEPCO $350 million and Wapda nearly $200 million.