EDITORIAL: Pakistan procured 12,767 million dollar loans July-March 2021-22 (provisional) against the budgeted 14,088 million dollars with total provisional non-project aid at 10,114 million dollars (including budget support of 8,882 million dollars and short-term credit of 1,207 million dollars).
In marked contrast, project assistance (provisional) was only 1,761 million dollars for the same period. Publicly guaranteed loans accounted for 823.5 million dollars.
Thus in the first nine months of the current fiscal year 70 percent of foreign loans procured were for funding government expenditure as opposed to paying off past loans — the constant refrain of the Khan administration during its entire three-year-and-seven-month tenure and as often highlighted by Business Recorder given that the bulk of the government expenditure was on current non-development heads (which does account for payment of markup though during the previous two fiscal years foreign loan repayment was not a part of the current expenditure subsequent to the Debt Relief Initiative by the G-7 countries to enable developing countries better cope with the pandemic) which explains why it consistently failed to check inflationary pressures in spite of raising subsidies.
The source of these funds was mainly from multilaterals — 4,269 million dollars (against the budgeted 5,718 million dollars) of which bilateral loans accounted for 320 million dollars (roll-over is not included in the current year’s disbursements) while reliance on commercial banks was to the tune of 2,623 million dollars July-March 2021-22 (against the budgeted 4,870 million dollars) while time deposits/Saudi Fund for Development accounted for 3,000 million dollars.
The Economic Affairs Division data further reveals that the PTI administration procured foreign loans amounting to 49 billion dollars during its entire tenure — 39 billion dollars was earmarked for repayment of interest and principal as and when due on past loans though the past includes the period from August 2018 onwards with rescheduling loans (with a higher applicable interest charge), debt equity payments for sukuk/Eurobonds issued and interest payable on commercial loans procured.
In addition to this heavy reliance on foreign borrowing, the Khan administration raised its reliance on domestic borrowing from the 16.5 trillion rupees it inherited to over 27 trillion rupees when it left — an unprecedented rise of around 63 percent.
Thus it stands to reason that foreign borrowing to fund current expenditure as well domestic borrowing for budget support had a negative impact on the general price level which remained sustained during the entire tenure of the Pakistan Tehrik-e-Insaf government.
To mitigate the impact of this heavy sustained government injection into the economy the Shehbaz Sharif-led government must begin to slash expenditure. Reports indicate that the government has opted not to slash subsidies (including the 28 February relief package extended by the then Prime Minister Imran Khan that envisaged higher subsidies as well as lower revenue collection) as well as raise salaries and pensions for entirely political reasons.
One can only hope that the new government takes cognizance of the fact that it does not have the luxury of allowing political considerations to outweigh economic considerations given the state of the economy today; in the event that it allows these patently political decisions to remain in place then it would need to slash other components of current expenditure which will have a minimal impact on growth while if reliance is placed on slashing development expenditure, as has been the norm, then it would have implications on growth and subsequently on revenue generation as well.
The release of the data by Economic Affairs Division shows that Imran Khan’s narrative that loans were procured to repay only past loans was not accurate and that he was misinformed by his subordinates.
Sadly, many a times there have been instances when the prime ministers have been misled by feeding incorrect data to show a better performance than is in fact the case and therefore a valuable lesson learned is for the prime minister to be hands on with his cabinet members rather than rely totally on a weekly update that may not present the entire picture faithfully.
Copyright Business Recorder, 2022