Pakistani authorities have secured around $6.3 billion in foreign loans in the first seven months of the current fiscal year. This sum accounts for roughly 35.75 percent of the annual budget projection, despite restricted borrowing opportunities due to low credit ratings and severe global financial market circumstances, even with the International Monetary Fund’s (IMF) assistance.
The caretaker administration currently claims to have improved debt management by avoiding foreign capital markets and commercial borrowing, as indicated in the federal budget for 2023-24.
In its monthly Foreign Economic Assistance (FEA) report, the Economic Affairs Division (EAD) showed that the government received $6.3 billion in foreign inflows from July to January in FY24, compared to the yearly objective of $17.6 billion. This figure represents a tiny increase of $170 million over the $6.134 billion received during the same time last year, which was particularly tough considering Pakistan’s rocky relationship with the IMF.
The decreased inflows are largely owing to the bad worldwide climate and Pakistan’s low credit rating, which discourages involvement in foreign capital markets. As a result, Pakistan postponed plans to issue a $1.5 billion Eurobond due to rising interest rates in international markets and the country’s deteriorating credit rating.
According to the EAD report, the government had budgeted an extra $4.5 billion in foreign commercial loans for the current fiscal year, but these plans were not carried out due to a decrease in the current account deficit.
The EAD saw total inflows of $331 million in January, a significant fall from $1.62 billion in December. This amount was significantly less than the $416 million collected in November. Major multilateral lenders made significant payouts in December 2023, including $638 million from the World Bank, $469 million from the Asian Development Bank, and $255 million from the Asian Infrastructure Investment Bank.
Major Foreign Economic Assistance (FEA) inflows for the first seven months included $2.89 billion in July 2023, after Pakistan’s agreement with the IMF for a new short-term program.
These amounts are in addition to the $1.9 billion given by the IMF between July and January as part of the $3 billion Stand-By Arrangement (SBA), as well as a separate $1 billion from the UAE, which is accounted for by the State Bank of Pakistan. Consequently, total foreign inflows, including IMF and UAE contributions, totaled $9.2 billion in seven months.
Interestingly, the EAD accounted for $1.16 billion in IMF funding in the previous fiscal year but did not show equivalent inflows this year. Last year, the EAD predicted $3 billion from the IMF, but only $1.16 billion materialized due to the program’s derailment following the departure of previous finance minister Miftah Ismail.
The EAD had planned $2.4 billion from the IMF for FY24, but it later pledged $3 billion with the signing of a new agreement that would end in April. The fund has already distributed nearly $1.9 billion, with $1.1 billion remaining subject to the successful completion of the quarterly review.
Moving forward, the Ministry of Finance expects $3.5 billion in commercial loans under the IMF deal, down from $4.5 billion previously projected.
According to the EAD, the majority of the $6.3 billion received ($4.5 billion) was intended for budgetary support or program loans, with around $1.8 billion allocated for project aid.