Pakistan depends on global commercial banks to continue dollar inflows (report)

A file photo of a man counting US dollar bills. Photo: AFP
  • Out of $802.3 million in foreign loans raised in November 2021, Islamabad received $663.2 million from international commercial banks.
  • Sources cite Islamabad’s inability to complete the 6th review under the IMF’s $6 billion package as the reason for its reliance on easy dollar inflows.
  • Data analysis shows that the government is forced to opt for short-term commercial loans to meet its annual budget targets on external inflows.

Pakistan continues to rely significantly on international commercial banks to produce dollar inflows to avoid the depletion of foreign exchange reserves despite the continued stalemate over the renewal of the IMF program, The news reported Friday.

Of the $802.3 million in foreign loans raised in November 2021, Islamabad received $663.2 million from international commercial banks.

The publication quotes senior official sources as saying: “It is Islamabad’s inability to complete the 6th review under the IMF’s $6 billion Expanded Financing Facility that has kept the country’s heavy dependence on cheap dollar inflows through commercial banks.”

Although it planned to raise $1 billion through the launch of the Sukuk bond, the government was unable to move forward after seeing weak appetite from the international market, the publication reported.

It was then decided that the bond would be launched during the second half (January-June) of the current financial year.

Against total budget estimates of $14.008 billion for the entire 2021-22 financial year, Islamabad has so far generated $4.699 billion in the first five months of the current financial year.

Pakistan was able to increase total dollar inflows in the form of loans and grants to the tune of $4.7 billion ($4.699 billion exactly) in the first five months (July-November) of the current fiscal year 2021-22 versus $4.5 billion generated in the same period last fiscal year.

An analysis of official data showed that the government has been forced to resort to short-term commercial borrowing to bridge the gap and meet its fiscal targets for external inflows on an annual basis.

During the same period of the last fiscal year 2020-21, the government had received a total of $4.499 billion in external contributions from multiple funding sources, or 37% of the annual budget estimate of $12.233 billion for the entire financial year 2020-21.

In fiscal year 2019-20, external inflows amounted to $3.108 billion, or approximately (24%) of the budgeted annual amount of $12,958 million. The total revenue of $4.499 billion represents $1.3 billion or 29% as programme/budget support to restructure the Pakistani economy; $1.621 billion (36%) in the form of foreign commercial borrowings to repay maturing foreign commercial loans; and $518 million (12%) in the form of project assistance to fund its development project activities to improve the socio-economic development of the country and for asset creation and $60 million (1%) under form of short-term credit while $1 billion (22%) received in term deposits in the first five months of the last fiscal year 2020-21.

In the first five months of the current fiscal year, the government has generated $128.74 million from bilateral creditors, with China providing $73 million, France $3.5 million, Germany 3 .52 million, Japan $5.15 million, Saudi Arabia $1.09 million, United Kingdom $10.01 million and United States $29.23 million. .

The government had generated $1.04 billion through Eurobond in July 2021, so this amount was also added to the total dollar inflows received in the first five months of the current fiscal year. Through international commercial banks, the government secured $1.529 billion in the first five months of the current fiscal year. The government secured $720 million from Dubai Bank, $478.2 million from Standard Chartered Bank of London and $270 million from the Consortium of Susie AG, UBL and ABL. The government secured $1.998 billion in loans from multilateral creditors in the first five months of the current fiscal year, including $620 million from the AfDB, $37.77 million from the AIIB, $115 million from IBRD from the World Bank, $739.15 from IDA loans from the World Bank, $468.3 million from short-term loans from the IDB and many others.

Pakistan’s total foreign exchange reserves stood at $25.027 billion; the foreign exchange reserves held by the SBP amounted to more than 18 billion dollars and the commercial banks to 6.45 billion dollars. During the week ending December 10, 2021, foreign exchange reserves decreased by $90 million to $18.56 billion.

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