FeaturedNationalVOLUME 19 ISSUE # 6

Foreign loans no answer to our economic woes

For years Pakistan has been borrowing from external sources, but these loans have not proved to be an answer to our economic problems. The truth of this statement is proved by the latest data of the Pakistan Bureau of Statistics according to which external borrowing failed to meet the budgeted target by 51 percent.

The budgeted figure for the first five months of the current fiscal year was 10 billion dollars but the amount realized was only 4.285 billion dollars during July-November 2023. It may be added here that the total amount budgeted for the year was 24.2 billion dollars (6,874,426 million rupees with a projected exchange rate of 284 rupees to the dollar).

The gap in external borrowing should be a matter of concern as this has happened despite the staff-level agreement reached on the first review of the ongoing Stand-By Arrangement of the International Monetary Fund on November 15. According to experts, the shortfall has occurred because the finance ministry had unrealistically budgeted 6.1 billion dollars from issuance of Sukuk/Eurobonds (435 billion rupees) plus borrowing from commercial banks abroad (1,305 billion rupees) in the face of negative marking about our economy. Another factor was the slow pace of official pledged inflows as friendly countries expressed their concerns over the government’s failure to meet contractual obligations, particularly in the energy sector.

It may be added here that external borrowing during the first five months of the current year was16.2 percent lower than in the comparable period of last year (at 5.114 billion dollars), reflecting rising dissatisfaction with the ongoing policies mandated by the IMF. Although current account deficit in November was in surplus at 9 million dollars against a deficit of 157 million dollars in November 2022, the decline was not through a rise in exports – from 11,942 million dollars July-November 2022 to 12,172 million dollars in the same period of 2023 (a rise of 1.93 percent) but due to a steep decline in imports that caused by extensive exchange restrictions from 26,064 million dollars in  July-November 2022 to 21,550 million dollars) during the first five months of the current fiscal year – a decline of 17.32 percent.

The decline in imports affected the import of raw materials which impacted negatively on the large-scale manufacturing (LSM) sector, the primary export earner as well as the major source of income tax revenue. The LSM index marked negative 0.44 percent for July-October this year as compared to the same period of last year. In other words, the current account deficit was brought down at the expense of loss of employment in the LSM sector, and lower exports and growth rate.

Foreign direct investment too remained lackluster, rising from 607 million dollars in July-November 2022 to 656 million dollars in the comparable period of this year. Unfortunately, Pakistan has throughout failed to attract FDI, the average annual inflow amounting to a little over 150 million dollars. This constitutes 0.2 percent of the total world FDI flows and less than one percent of Asian FDI.

Among the many dismal macroeconomic indicators, an important one is the steady rise in the debts and liabilities of the Public Sector Enterprises (PSEs). The latest data released by the State Bank of Pakistan shows that the debts and liabilities of PSEs surged 24.1 per cent to Rs2,332.9bn in September on a year-on-year basis. Overall the PSEs recorded 32.7pc or Rs573.6bn rise in debt and liabilities in FY23 over the preceding year.

The PSEs debt in June 2022 was Rs1,393.4bn which rose to Rs1,687.2bn in June this year and went up to Rs1,698.1bn in September. The liabilities also increased to Rs640.9bn in June 2023 from Rs361.1bn in the same month last year. The SBP data further reveals that the debts and liabilities till June were 2.7pc of gross domestic product (GDP). The top three loss-making entities were PIA with debt and liabilities of Rs180.6bn till Sept 2023, followed by Wapda Rs92.6bn and Pakistan Steel Rs40.3bn. However, no data is available for other loss-making PSEs despite huge increases in their debts and liabilities which rose to Rs1,378.7bn in September from Rs1089.7bn in June 2022.

The government has been trying to sell out some of the PSEs but with little success. We are unable to find investors because the losses have accumulated to astronomical figures. What is most unfortunate is that there is no strategy or organized effort made so far to reduce the losses or improve management in entities like the PIA which was once a model for other airlines. The same goes for the prestigious Pakistan Steel Mills which has become a dead horse at the hands of corrupt government functionaries.