FeaturedNationalVOLUME 15 ISSUE # 02

Record loans, unprecedented repayments

Pakistan’s debt and liabilities have surged by Rs11 trillion and reached Rs40 trillion in the first year of the Pakistan Tehreek-i-Insaf (PTI) government. The debt obtained in one year is unprecedented in Pakistan’s history. However, the government has repaid $9.5b in the short period, which has never happened in the past.

It is for the first time that Pakistan has borrowed a whopping $16 billion in foreign loans in just one year.


According to the government, it aimed at avoiding default on international debt obligations and financing its imports. The $16 billion worth of foreign loans have been obtained during fiscal year 2018-19, which included 11 months of the PTI government, according to official documents. Out of the $16 billion, the PTI government took $13.6 billion loans – the highest ever by any government in a single year. The remaining $2.4 billion had been received in July 2018, during the tenure of the caretaker setup. The massive borrowing in the last fiscal year included $5.5 billion by Saudi Arabia, the United Arab Emirates and Qatar. In the preceding fiscal year 2017-18, Pakistan had obtained $11.4 billion in foreign loans. Loans of $16 billion in FY19 were the highest ever external borrowing in any fiscal year since Pakistan’s creation. About 42pc or $6.7 billion of the total external borrowing came from China alone. It included $2.54 billion in commercial loans, $1.6 billion under the China-Pakistan Economic Corridor (CPEC), $2 billion in China State Administration of Foreign Exchange (SAFE) deposit and $628.4 million for Karachi nuclear power plants. In fiscal year 2017-18, China had given $4.5 billion to Pakistan.


This is the third time in Pakistan’s history that any government has taken over $10 billion in fresh foreign loans in a single year. The $16 billion in loans were 71pc or $6.7 billion higher than the government’s own estimates. The government had to heavily rely on foreign loans due to a steep decline in foreign direct investment, negative growth in exports, higher import bills and repayment of maturing debt. The government’s decision to depreciate the rupee by over 26pc against the US dollar adversely impacted the country’s ability to repay debt.

Like the Pakistan Muslim League-Nawaz (PML-N), the PTI government also relied on short-term foreign commercial loans. Against the budgetary estimate of $2 billion, the PTI government took $4.1 billion in foreign commercial loans. For the new fiscal year 2019-20, the IMF has projected Pakistan’s gross external financing requirement at $25.6 billion. It includes $6.6 billion in current account deficit financing and $18.2 billion in external debt repayment by both public and private sectors.


The PML-N had added Rs15 trillion to public debt and liabilities in five years, while the PTI increased total debt and liabilities by Rs11 trillion in one year. More than 80pc loan was piled up by the PTI in one year in comparison with five years of the PML-N. The public debt and liabilities stood at Rs29 trillion on June 2018, which peaked to Rs40 trillion on June 30, 2019. The latest data released by the State Bank of Pakistan (SBP) showed that foreign loan stood at $106 billion till the last fiscal year.


On the other hand, the government has retired record foreign loans worth $9.5 billion in the last fiscal year, which is also unprecedented in Pakistan’s history. External debt has increased by $2.7 billion in the PTI government, whereas in the last year of the PML-N government, foreign loans had surged by over $7 billion, Federal Minister for Economic Affairs Hammad Azhar informed the National Assembly recently. Responding to the opposition’s claim of obtaining domestic loans worth Rs 7,000 billion or Rs 10,000 billion by the PTI government in its first year in power, he said the figures were highly exaggerated.


Pakistan’s total debt and liabilities have risen from Rs6,100 billion to Rs31,000 billion in the last 10 years, when Pakistan was ruled by the Pakistan Peoples Party (PPP) and the Pakistan Muslim League-Nawaz (PML-N). According to the International Monetary Fund (IMF), Pakistan’s external debt and liabilities would go up by $20.5 billion in the next three years under its program. In its staff report, the IMF said the net international foreign currency reserves held by the State Bank of Pakistan (SBP) stood at negative $17.74 billion by the end of June 2019, and it would further go up to negative $18.478 billion by the end of September 2019. It projected that Pakistan’s external debt and liabilities would go up from $104.165 billion by the end of fiscal year 2018-19 to $124.688 billion in financial year 2021-22. It projected that total public and guaranteed debt would surge by Rs11,000 billion from Rs30,000 billion in 2018-19 to Rs41,799 billion in 2021-22.

However, the IMF believes Pakistan’s debt is still in the limit of sustainability. “Public debt will only be sustainable with full implementation of the adjustment programme. “Under the Extended Fund Facility (EFF), a strong fiscal consolidation of 4.5pc of GDP in primary balance over four years and a recovery in growth supported by structural reforms will help public debt decrease to around 67 percent of GDP by FY-2024,” it noted. The IMF forecast the external debt-to-GDP rate to steadily decline after peaking in FY-2021 due to smaller current account deficits, capital inflows, and flexible market-determined exchange rates. Pakistan’s underlying gross external financing needs can be lower by 1.3 percentage points of GDP on average every year during the IMF programme and beyond.


It is a fact that past governments failed to make structural changes and improve governance but the PTI government cannot blame them now. Consequences of all blunders, mismanagement and inaction of the past governments lie on the table of Prime Minister Imran Khan and he has no option of failure. The situation is not easy to handle. The government is finding it difficult even to foot debt servicing and necessary expenditure and funds for public welfare look impossible at the moment. However, people can expect relief after two years when public debt will start decreasing and the government would have spare funds for public welfare projects.