Ease in lockdown by government may lead to jack-up project financing in coming months

ISLAMABAD            -       Pakistan had paid $8.976 billion as servicing of external public debt in eleven months (July to May) of the previous fiscal year. The country had paid $7.361 billion as principal and $1.615 billion as interest on the outstanding stock of external public debt in July to May period of the year 2019-20.

The country had to pay $10.423 billion in whole last financial year. Around 61 per cent of total external public debt repaid during fiscal year 2019-20 constitutes the repayments of some of the foreign commercial loans and international Sukuk which were obtained in the past. The documents of Economic Affairs Division (EAD) showed that the government had settled $3.712 billion worth of foreign commercial loans and repaid $1.billion worth of international Sukuk issued in December, 2014. Similarly the government has also repaid $1.923 billion to multilateral and $725 million to 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. The data showed that Pakistan had taken $10.662 billion total external inflows from multiple financing sources during previous last financial year. The government was supposed to borrow $13 billion in year 2019-20. The gap between the budgetary target of $13 billion and the actual inflows of $10.6 billion is primarily because government was unable to issue Eurobonds of amount $3,000 million in the international capital markets.

According to the EAD, In the aftermath of COVID-19 and its persistence in the country the disbursements of project aid from development partners dried up during the last quarter of the outgoing fiscal year 2019-20. The pandemic has closed down most of the economic activities across the country which also slowed down development project activities. However, ease in the lockdown by the Government may lead to jack-up the project financing in the coming months. In spite of challenging circumstances, Ministry of Economic Affairs through its vigorous efforts has managed to secure external inflows of $1,903 million during the month of June, 2020. The government received program loan of $500 million from World Bank for budgetary support, $500 million each from Asian Development Bank (ADB) & Asian Infrastructure Investment Bank (AIIB) for scaling up spending on health and social protection to mitigate COVID-19 adverse effects. The aforementioned program loans are also expected to build foreign exchange reserves and stabilize Pak. rupee against the US dollar.

The total receipt of $10,662 million constitutes $4,000 million or 37 per cent as program/budgetary support assistance from Asian Development Bank, World Bank, Korea and U.K. to restructure Pakistan’s economy; $3,373 million (32 per cent) as foreign commercial borrowing to repay maturing international Sukuk and other foreign commercial loans; and $1,694 million (16 per cent) as project assistance to finance its development projects activities for improving the socioeconomic development of the country and for asset creation. Remaining $1,583 million (15 per cent) were received for commodity financing.