According to the Economic Affairs Division (EAD), the government of Pakistan negotiated new loan agreements for $7.228 billion with development partners during the first three-quarters (July-March) of the fiscal year 2022–23, down from $11.321 billion during the same time in 2021–22.
The Division’s “Third Quarterly Report on Foreign Economic Assistance July-March 2022-23” was released on Monday.
It noted that the Kingdom of Saudi Arabia’s (as a deposit) $3 billion loan deposit and the issuance of Eurobonds worth $2 billion in the international capital markets were the primary drivers of higher commitments during fiscal year 2021–22.
However, compared to the same period last year ($2.440 billion), the government was able to make larger commitments with its multilateral development partners in July–March 2023 ($5,289 billion).
Loan Disbursement For Different Projects
Out of the entire new loan agreements, financing arrangements for $5.289 billion, 900 billion with foreign commercial banks, and $1.039 billion with bilateral partners were signed.
Out of the total commitments of $7.228 billion, the first three quarters of the fiscal year 2022–23 (July–March 2023) will be used for following projects.
To address the government’s liquidity needs, funds totaling $2.767 billion were set aside for project financing, $2.400 billion for program financing, $1.161 billion for commodities financing, and $900 million for budgetary assistance.
Disbursements totaling $7.765 billion were received from financial institutions, international and bilateral development partners, and others between July and March 2023.
Pakistan’s Total External Debt
Pakistan’s total external public debt was $85.18 billion as of the end of March 2023 compared to $86.56 billion at the end of December 2022, a $1.38 billion decrease.
The government owes $64 billion to multilateral and bilateral development partners, including the IMF, out of the $85.18 billion in total external public debt.
Meaning that more than two thirds (i.e. 75%) of the total external public debt is on favorable terms with a longer maturity, 16% (i.e. $13.5 billion) is from international capital markets and foreign commercial banks, and 7% (i.e. $7 billion) is made up of deposits from friendly nations (China and Saudi Arabia).
Between July and March 2023, the government made payments totaling $12.922 billion to repay external public loan debt.
This consists of a $10.835 billion debt repayment and a $2.087 billion interest payment.
In contrast, the government paid $9.436 billion over the same time period in the previous year (i.e., July-March 2022), consisting of $1.299 billion in interest payments and $8.137 billion in principle repayment.
Foreign commercial banks received the greatest payments ($4.865 billion), followed by bondholders ($1.392 billion), investors in IsDB commodities finance ($1.246 billion), China ($1.110 billion), and the IMF ($948 million). Net transfers to the government were negative $3.349 billion from July to March 2023.
Why The Need of Loan?
According to the Division, controlling foreign debt and enhancing a country’s ability to repay its debts requires a careful approach to managing it and solid institutional frameworks.
The research emphasized that borrowing can be beneficial for developing countries’ economic progress provided the economic benefits outweigh the cost of borrowing money, with a special emphasis on the development of assets that can generate income.
More than two thirds of the entire external public debt is on favorable terms with a longer duration, so the composition of the external public debt remains satisfactory.
However, One-fifth of the external public debt, or just a minor amount, which consists of bonds and commercial borrowings, carries higher interest rates.
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