Jul-Mar FY23: New loan pacts worth $7.228bn signed with development partners: EAD

ISLAMABAD: A prudent external debt management strategy coupled with strong institutional arrangements is necessary for managing external debt and improving the repayment capacity of the country, said the Economic Affairs Division (EAD).

The Division, on Monday, released, “Third quarterly report on foreign economic assistance July-March 2022-23,” which noted that the government of Pakistan signed new loan agreements worth $7.228 billion with development partners during the first three-quarters (July-March) of the fiscal year 2022-23, compared to $11.321 billion during the same period of 2021-22.

The report stressed upon that borrowing can be productive for the economic growth of developing countries if the economic returns are higher than the cost of borrowed funds, with a special focus on the creation of income-generating assets. The composition of external public debt remains satisfactory as more than two-thirds of the total external public debt is on concessional terms with a longer maturity.

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However, a small portion (i.e. one-fifth) of the external public debt (commercial borrowings and bonds) entails higher interest rates.

The official data revealed that the main reasons for higher commitments during the fiscal year 2021-22 were the issuance of $2 billion worth of Eurobonds in the international capital markets, larger commitments with foreign commercial banks, and obtaining a deposit worth $3 billion from the Kingdom of Saudi Arabia (as a deposit).

However, in July-March 2023 the government was able to make higher commitments with its multilateral development partners ($5,289 billion) as compared to the corresponding period last year ($2.440 billion).

Out of the total new agreements, $5.289 billion worth of financing agreements were signed with multilateral development partners, $900 million with foreign commercial banks, and $1.039 billion with bilateral partners.

During the first three quarters of the fiscal year 2022-23 (July-March 2023), out of the total commitments of $7.228 million, an amount of $2.767 billion was earmarked as project financing, $2.400 billion for program financing, $1.161 billion was secured for commodity financing and $900 million for budgetary support to meet the liquidity requirements of the government.

During the period from July to March 2023, disbursements amounting to $7.765 billion were received from multilateral and bilateral development partners as well as from financial institutions.

As of 31st March 2023, Pakistan’s total external public debt stood at $85.18 billion, whereas it was $86.56 billion on 31st December 2022, showing $1.38 billion reduction in total external public debt. Out of the total external public debt of $85.18 billion, the government owed $64 billion to multilateral and bilateral development partners including IMF.

Meaning, more than two-thirds (i.e. 75 percent) of the total external public debt is on concessional terms with a longer maturity, 16 percent (i.e. $13.5 billion) from international capital markets and foreign commercial banks, and seven percent (i.e. $7 billion) of the total external public debt constitutes deposits from friendly countries (China and Saudi Arabia).

The government paid an amount of $12.922 billion during the period July-March 2023 on account of debt servicing of external public loans. This consists of principal repayment of $10.835 billion and interest payments of $2.087 billion. Whereas, in the corresponding period last year (i.e. July-March, 2022) the government paid $9.436 billion (principal repayment of $8.137 billion and interest payments of $1.299 billion).

The largest payments were made to foreign commercial banks ($4.865 billion), followed by bondholders ($1.392 billion), IsDB commodity financing investors ($1.246 billion), China ($1.110 billion), and IMF ($948 million). In July-March 2023, net transfers to the government were negative $3.349 billion.

Copyright Business Recorder, 2023