Pakistan has contracted another foreign commercial loan of $500 million from the Industrial and Commercial Bank of China (ICBC), taking the Chinese financial institution’s contribution to supporting a strong rupee against the US dollar to $1 billion in just three months.
The government contracted the loan on January 15 at a rate in the range of 4.5%, said sources in the finance ministry. In January, the country took total $704 million worth of new loans, taking foreign borrowings to $6.6 billion in just seven months of this fiscal year, said the sources.
Pakistan’s external debt, liabilities touch $89 billion
The foreign loans were equal to 86% of the annual budgetary estimates that parliament had approved in June last year. This suggests that foreign loans for the second consecutive year may cross $10 billion.
China was the single largest lender that gave a total of $1.6 billion, which was equal to one-fourth of the total foreign loans Pakistan has received in the last seven months. Beijing also gave roughly $610 million for project financing during the first seven months.
In terms of source, sovereign bonds were the single largest source after Islamabad raised $2.5 billion in November, which contributed roughly 38% to total foreign loans.
It was the second loan that the ICBC has given to Pakistan to support its diminishing foreign currency reserves, which are largely used to defend a strong rupee and finance the trade deficit. The ICBC had also given $500 million in October last year.
Sources in the State Bank of Pakistan said that it was still intervening in the exchange market to keep the dollar-rupee parity at current level. In December, the central bank let the rupee depreciate by 5.2% against the US dollar. But it was still far less than the International Monetary Fund’s assessment of the real value of the rupee.
With fresh foreign loans, the total foreign commercial borrowings in the first seven months of this fiscal year have increased to $1.8 billion, said the sources. The finance ministry had informed parliament in June last year that it would obtain $1 billion as commercial loans during 2017-18 that will end on June 30. However, it has already breached the limit with five months remaining.
So far, Citibank has given $267 million, Credit Suisse AG loaned $255 million, Standard Chartered Bank London $200 million and Dubai Bank $55.9 million. The share of foreign commercial banks in total loans stood at 27%.
The loans are obtained to stop the downward slide of the official foreign currency reserves that currently stand at $12.8 billion even after issuing $2.5 billion worth of sovereign bonds in November. The ministry is trying in vain to stop the reserves from slipping below the two-and-a-half-month import bill cover, which at current value of the import bill stands at $12.3 billion.
Official foreign currency reserves have depleted by $3.5 billion since July. The current account deficit during the first half of the fiscal year widened to over $7.5 billion.
The PML-N government has been accused of ruining the country’s exports by keeping rupee stronger and blocking taxpayers’ genuine refunds. This has kept the official non-debt creating inflows below requirements and caused a massive increase in the country’s external debt.
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Pakistan’s total external debt and liabilities as of December 2017 stood at $88.9 billion, higher by $5.8 billion or 6.9% over six months ago. The main increase came by issuing sovereign bonds and taking expensive commercial loans. In the first half, debt obligated by issuing Sukuk and Eurobonds increased by 52% to $7.3 billion.
Similarly, the debt obtained by taking commercial loans increased to $5.3 billion excluding the impact of the fresh ICBC borrowing.
The Islamic Development Bank extended $846 million loans and the Asian Development Bank gave $481 million for projects’ financing in the first seven months. The World Bank released only $289 million in the July-January period, which is equal to 28% of the official annual estimates of $1.03 billion.
Published in The Express Tribune, February 17th, 2018.