Lahore

The All Pakistan Business Forum has warned the government against piling of highly expensive debt, which may sink the country further into a debt trap, as the current regime has acquired loan of about 3.5 billion dollars by launching Eurobonds at excessive markup rate of 8.25 on average in just two years.

APBF President Ibrahim Qureshi said that the government has rewarded the nation with Eid gift in the shape of another commercial loan of $500 million on extraordinary high markup by launching Eurobonds on the occasion of Eid Ul Azha.

He said that it is surprising the same govt has already sold $2 billion Eurobonds and Sukuks at 8% and 7% markup last year, implying the economic managers have acquired loan at more than 2% higher markup.

APBF President said that government has been exploring possibilities of financing its deficit from multiple sources like IMF, World Bank, domestic borrowing and now it has found the easiest, yet extremely expensive, solution of all, Eurobonds.

The extremely low level of foreign direct investment of just 1 billion dollar against $5 billion a few years back implied that foreign investors are not satisfied with the economic policies of the current government. That is why their response was poor. He said the government entered into a long-term commitment for short-term relief, which is illogical. He said that international loans are more expensive than domestic loans but government was increasing international loans, tilting loan portfolio towards expensive sources of funds and its implications will be felt in the future. The Eurobonds will be paid off in dollars at the then prevailing rate. So the government earns in rupees but pays the loans in dollars and that too at the then prevailing rate.

He added that current account continued to run in deficit despite the record plunge in oil prices which was the single biggest import of Pakistan. Exports also continued to decline and the drop in exports is starting to reach alarming proportions. In the same way, an energy crisis is getting even worse with massive load shedding with continued delay in new projects.

He said that no reduction is visible in line losses and receivables have reached record levels while circular debt have returned back to near record levels despite doubling of prices of electricity.

The government should work on a sustainable way of building reserves and to focus on economic growth and come up with export boosting policies. Ibrahim Qureshi said that the external debt servicing reached close to $7 billion in fiscal year 2014, which is almost 35% of the reserves Pakistan.