KARACHI: Direct borrowing from international financial institutions by Pakistan’s provincial administrations, along with the country’s widening trade deficit, caused overall external borrowing to rise by $6.99 billion in 2017, the biggest increase in foreign debts in the past four years. “Last year, the governments of Punjab, Sindh and Khyber Pakhtunkhwa (KP) directly approached foreign lenders to finance their ongoing projects,” said senior economist Muzzamil Aslam. “In Punjab, the administration borrowed money for the Orange Line train and metro bus projects. Similarly, Sindh acquired loans for its Green Line bus project, while KP borrowed money for its Bus Rapid Transit project.” According to the State Bank of Pakistan (SBP), the fresh accumulation of loans increased the total debt stock to $66.9 billion by the end of the year, an increase of 6.9 percent. In rupee terms, the debt increased by 12.6 percent to Rs 7.3 trillion by the end December 2017. The difference in the percentage increases between the dollar and rupee primarily reflects the effect of depreciation of the latter currency during the first half of financial year 2018 (FY18). The increase in external debt was largely due to a $2.5 billion Euro bond, Sukuk issuance, and borrowings from commercial banks.“It is worth noting that the Euro/Sukuk bonds issuance was oversubscribed by more than $8 billion,” SBP pointed out in its report.
The country is also facing its worst-ever current-account deficit, of $10.83 billion, mainly as a result of burgeoning imports, insufficient exports and a decline in the inflow of workers’ remittances. “The country is also facing a trade deficit as its imports are increasing while exports are not keeping pace with this spike,” said Aslam. “Another factor is increasing oil prices that have gone up from around $40 a barrel.” In addition, the strengthening of other currencies against the US dollar resulted in the addition of $669.3 million as revaluation losses. Specifically, the dollar weakened against euro by 4.9 percent and the SDR (the International Monetary Fund’s monetary reserve currency) by 2.3 percent, which added significantly to the dollar value of Pakistan’s external debt. Pakistan devalued its currency by 10 percent against the dollar in the current fiscal year, 2017-18. Gross loan disbursements increased by 44 percent during the first half of FY18. About two-thirds of the inflows came from bond issuance and government borrowings from foreign commercial banks. In addition to the commercial borrowings, support from multilateral donors came largely for energy and infrastructure projects. For bilateral loans, major inflow came from China for infrastructure projects as part of the China-Pakistan Economic Corridor (CPEC).The debt stock remained stubbornly high despite the repayment of $2.269 billion on account of debt servicing during the first half of the year. “The servicing of external public debt was higher by $720.2 million, as compared with $1.55 billion for the same period last year,” the SBP said. “The main servicing burden was due to repayment of foreign commercial loans that reached around $537.4 million during the first half of the current fiscal year, FY18. In addition, the repayment to the Paris Club and other multilateral donors also increased significantly during the period.”
Pakistan’s public debt amounted to Rs 22.8 trillion, of which about Rs 15.4 trillion is denominated in local currency. This means about two-thirds of the public debt is not prone to any currency risk. On the other hand, the rupee depreciation against dollar increased the rupee value of the external debt. However, this has not added to foreign-currency liability of the country.