NationalVOLUME 17 ISSUE # 40

Perpetual loans!

The two coalition governments of Imran Khan and Shehbaz Sharif took record foreign loans of nearly $20 billion in the last fiscal year “for the poor of Pakistan”. And one of those poor, identified as Kabeer Khan, was caught stealing a 10-kg flour bag in Sargodha on August 18.

The young man was stated to be a resident of Khan Muhammad-wala of Tehsil Bhera, who was later given a sound thrashing by his village fellows, for stealing only a 10-kg flour bag despite having received “billions of dollars”. Locals not only beat him black and blue but also shaved his head, moustaches and eyebrows, blackened his face with ink, and made him go around the village for committing such a petty thing. He should have plunged into a well to end his life, instead of stealing 10-kg atta.

That exciting drama ended in only a few hours then and there, in that village, but the drama of acquiring billions of dollars worth of loans in the name of the poor Pakistanis never comes to an end. Every successive government finds it mandatory for itself to secure more and more loans to make the countrymen prosperous and happy!

The latest loans, amounting to over $19.7 billion, were secured by the current and the outgoing coalition governments in fiscal year 2021-22 from multilateral, bilateral and overseas Pakistanis, according to details separately released by the Ministry of Economic Affairs (MoEA) and the State Bank of Pakistan (SBP), recently.

But some others tell a different story about these loans. They say these loans are not acquired to make the poor prosperous and happy, but to pay the loans, earlier taken by the previous governments. But where did those loans go, which were acquired by the previous governments? Let’s not waste time asking silly questions. Let’s go through the details of the huge international money acquired by our dear governments, and enjoy the touch of those billions of dollars.

The beloved motherland took record foreign loans of nearly $20 billion in the financial year 2021-22, up 27%, largely to repay the maturing foreign debt and finance imports, as the country faces a serious challenge to keep these financing pipelines open. The borrowing was $4.2 billion higher than the preceding year.

The data collected by the economic affairs ministry showed that it had received $16.7 billion in foreign loans during the last fiscal year that ended on June 30, 2022. However, the ministry failed to achieve the loan disbursement targets, which are largely meant for project financing but require extra efforts.

The State Bank of Pakistan figures showed that it had received nearly $2 billion in highly expensive foreign loans for the Naya Pakistan Certificates and another $1 billion from the International Monetary Fund (IMF) in the last fiscal year. About 82% of the new gross foreign loans were aimed at bridging the budget deficit and artificially sustaining the foreign currency reserves. The rest of the 18% loans were taken for development projects ($2.5 billion) and funding a new fighter jet project (of course, defence of the country is a topmost priority).

The data that ever confuses the poor souls showed that the $2 billion loan, under the Naya Pakistan Certificates, was acquired at 7% interest rate in dollar terms, while the return in local currency was up to 11%.

The data also showed that out of the nearly $20 billion, loans of $15 billion had been taken during the time when Imran Khan was the prime minister. In total, Khan’s government took gross loans of $57 billion during its 43-month rule. Until the economy is put on a sustainable path where the economic wheel is not greased by foreign lending, the policymakers seem to not have a choice but to keep borrowing.

But, despite taking such huge loans, the country is still struggling hard to keep its economy running. The central bank is monitoring almost every single transaction to maintain reserves at existing levels until the IMF revives its loan programme. Pakistanis are hearing from their “kind-hearted” finance minister, Miftah Ismael, every other day, the huge IMF tranche is just around the corner.

However, due to the increasing reliance on loans to enhance the foreign currency reserves and finance the budget gap, the cost of debt servicing has gone up significantly, again a difficult subject which is not meant for the poor souls to understand.

During the fiscal year 2021-22, Pakistan received $4.9 billion in foreign commercial loans from banks, including $2.24 billion in June from a consortium of Chinese commercial banks. Despite all this, say economists, the country’s chances of getting major commercial loans and floating sovereign bonds have gone down after two credit rating agencies changed Pakistan’s outlook to negative while its bonds are trading at a discount on fears of default.

The SBP and the MoEA statistics showed that bilateral lending to Pakistan for project financing remained at only $597 million, excluding the publicly guaranteed debt. Pakistan also booked $1.53 billion worth of publicly guaranteed debt. It included $486 million for Karachi’s nuclear power plants, known as K2 and K3, and $1.03 billion for the fighter jet project, according to official figures.

Another parallel loan story: Pakistan obtained $4.7 billion loans from multilateral creditors, which were $665 million less than the budgeted amount. Amongst the multilateral development partners, the Asian Development Bank (ADB) disbursed $1.6 billion during the last fiscal year. The World Bank released $1.5 billion against the budgeted amount of $2.3 billion. The Islamic Development Bank (IDB) disbursed $1.3 billion for crude oil imports. Also, the government raised $2 billion by floating long-term bonds against the budgeted figure of $3.5 billion. It included $1 billion through the most expensive Sukuk in Pakistan’s history at nearly 8% interest rate.

Pakistan’s “friends” keep funding it on almost every other occasion. Last year too, one friendly country, Saudi Arabia, gave Pakistan $3 billion in cash deposits. In the presence of such huge amounts, billions and billions of dollars, lying in the coffers of these Pakistanis, if Kabeer Khans go for stealing 10-kg atta bags, definitely the prime minister and the chief ministers could not be held responsible for it. Every prime minister acquires more and more loans for them, what else can they do for them?