ISLAMABAD-Pakistan’s borrowing from external sources had remained lower in ten months (July to April) of the current fiscal year due to out-break of COVID-19 as the pandemic has completely halted the development activities across the country.

Pakistan had borrowed $7.381 billion from the external sources in Jul to April of the current fiscal year. The government’s borrowing from international lenders remained lower than the budgeted estimates. The borrowing of $7.381 billion is only 57 per cent of the annual budget amount of $12.958 billion. The government’s borrowing is even lower than what it had borrowed in same period of previous fiscal year. The external inflows during the corresponding period of FY 2018-19 were $8.515 billion (88 per cent) against the budgeted amount of $9.692 billion.

“Relatively low disbursements during FY 2019-20 may be attributed to out-break of COVID-19 as the pandemic has completely halted the development activities across the country. Accordingly, every development project got slow down because of the lockdown in the country. However, ease in the lockdown by the Government may lead to jack-up the project financing in the coming months,” the Economic Affairs Division stated in data on foreign borrowing and repayment.

The breakup of $7.381 billion showed that Pakistan had borrowed $2.324 billion or 31 per cent in the form of program/budgetary support aid from Asian Development Bank, World Bank, Korea and U.K. to restructure Pakistan’s economy. Meanwhile, the government had taken $2.073 billion (28 per cent) as foreign commercial borrowing to repay maturing international Sukuk of $1,000 million and other foreign commercial loans. Furthermore, $1.329 billion (18 per cent) to finance its development projects for improving the socio-economic development of the country and remaining $1.583 billion (21 per cent) for commodity financing.

The Budget Estimates of foreign economic assistance through bilateral and multilateral development partners for FY 2019-20 were $4.758 billion. During the first ten months of current FY 2019-20, an amount of $4.529 billion was received from multilateral and from bilateral development partners on concessional terms with longer maturity. Amongst the multilateral development partners, Asian Development Bank provided $2.253 billion, Islamic Development Bank $879 million and World Bank $505 million. While from bilateral source, the leading donors were China ($487 million), UK ($128 million), Korea ($94 million) and USA ($59 million).

The EAD report showed that total servicing of external public debt was $6.530 billion during July – March, 2019-20 as against the budgeted amount of $10.423 billion for the entire fiscal year. Of which, $5.117 billion (78 per cent of total external public debt servicing) was repaid as principal and $1.413 billion (22 per cent) as interest on the outstanding stock of external public debt. Around 54 per cent of total external public debt repaid during FY 2019-20 constitutes the repayments of some of the foreign commercial loans and international Sukuk which was obtained by the previous government.

During the first nine months of current fiscal year, the government settled $1.772 billion worth of foreign commercial loans and repaid $1 billion worth of international Sukuk issued in December, 2014. Similarly the government has also repaid $1.635 billion to multilateral and $710 million worth of external loans of bilateral development partners. Considering foreign exchange constraints, financing of development projects and repayments of these huge external public debts compel the incumbent government to further borrow from multiple sources.

Net transfer is one of the important concepts in debt management. It is estimated by taking difference between external public loans and their repayments. Positive balance shows increase in external debt stock while negative balance shows reduction in external debt stock. Implication for positive or negative balance varies from country to country and depends upon country’s macroeconomic condition. If a country is in balance of payments crisis and faces shortage of foreign exchange, positive balance helps country to manage its crisis up to some extent and strengthen foreign exchange reserves. Further, the net transfers is a flow concept whereas external debt is a stock concept, therefore, these two are not directly comparable. However, net transfers give us a fair idea how external public debt will change.

For the period July-March, 2019-20, net transfers to the government were $1.189 billion. Positive net transfers mainly comes due to program lending by Asian Development Bank to address fiscal imbalances, ensure macroeconomic stability and secure financial sustainability in the country. Interestingly, the stock of external loans which was obtained on market based instruments has declined by $ 699 million and the share of concessional external loans with longer maturity increased by $1,888 million.