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Print Print 2024-01-14

‘Extensive’ borrowing in foreign currency: Two govts blamed for worsening external debt

  • Acting finance minister says Pakistan's external debt significantly increased as a result of PTI and PDM borrowing forex during the past five years
Published January 14, 2024

ISLAMABAD: The caretaker Finance Minister, Dr. Shamshad Akhtar has reportedly accused both previous PTI and coalition (PDM+PPP) governments for “extensive” borrowing of forex during last five years to meet local expenditure, which had increased the burden of foreign debt of Pakistan substantially, well informed sources told Business Recorder.

She made these remarks during a recent meeting of the ECC when a proposal of Finance Division was tabled titled “addendum to the Subsidiary Grant Agreement (SGA) - Financial inclusion & Infrastructure Project and exemption from Re-lending Policy for release of funds to SBP.”

On January 9, 2024, Finance Division briefed the ECC that the Financial Inclusion and Infrastructure Project (FIIP) was launched in year 2017 under the ambit of the National Financial Inclusion strategy (NFIS) - 2015. FIIP was a World Bank funded project with a total portfolio of $ 137 million. The project was originally designed with tenure of five years that concluded on December 31, 2022. Meanwhile, in the wake of floods in year 2022 and some other delays that the project faced due to Covid -19 a 30-month extension till June 2025 was accorded. Subsequent revision in the PC-I of the project was approved by the ECNEC in 2023.

IMF’s first review: proud moment, says Dr Shamshad Akhtar

The project had three main components. An amount of $ 127.6 million was allocated for components 1 & 3 to be executed by the State Bank of Pakistan (SBP), whereas $ 9.4 million were allocated for component number 2 to be executed by the Central Directorate of National savings (CDNS). Consequently, $ 127.6 million was transferred to SBP as grant for execution of component 1 and 3 as section 17 (16) (b) of SBP Act 1956 bars the Bank from such borrowing. In light of said section, exemption from the specified terms in the Re-lending Policy of the Government was allowed by the ECC in December 2017 for $ 127.6 million.

Accordingly, a subsidiary Grant Agreement (SGA) was signed between EAD and SBP in March 2018 for provision of $ 127.6 million as grant to SBP. Component 2 (CDNS) could not take off due to multiple reasons, and $ 9.24 million was repurposed to component 3 specifically for flood impacted households. Break-up of allocation in each component of the project, before and after repurposing was as follows: (i) direct support to NFIS implementation -original allocation $ 17.6 million- allocation after repurposing $ 16 million ;(ii) supporting expansion of access points for financial services (CDNS)- original allocation $ 9.4 million- allocation after repurposing $ 0.16 million and ;(iii) improving access to microfinance and to financial services for micro, small and medium enterprises- original allocation $ 110.1 million- allocation after repurposing $ 120.84 million.

Finance Division in a letter of June 26, 2018 advised the SBP to create a special Reserve Fund for the amount provided to SBP for Line of Credit and that the Fund would be returned to the Federal Government after the termination of Line of Credit. In line with direction, a total amount of $ 136.39 million would now be entrusted to SBP for execution of components l and 3 under FIIP. Consequently, reclassification of the amount provided to the SBP would be required after repurposing: i.e. fund of $ 118.84 million (for component 3/ Line of Credit), grant $ 17.15 million (for component 1 & 3).

The repurposing and reclassification had been concurred by both SBP and EAD. The same repurposing had accordingly been reflected and was approved by the ECNEC in the revised PC-1. So far $ 110.53 million has been disbursed and for further disbursement, the signing of SGA amendment would be required.

Finance Division submitted following proposals for consideration and approval of the ECC: (i) reclassification of $118.4 million being allocated to the SBP in component 3 (a) and b(ii) of the project as ‘Fund’ and $ 17.55 million for components 1 (a), 1(b), 1 (c) [ii, iii, and iv] and 3(b)(i) of the project as ‘Grant’; as a result of re-purposing and modification of existing exemption accordingly and ;(ii) approval to record the aforementioned modifications in form of addendum to the SGA, to be signed between SBP and EAD.

During the ensuing discussion, the caretaker Finance Minister, Dr Shamshad Akhtar observed that extensive borrowing of forex was made during last five years to meet local expenditure, which had increased substantially the burden of foreign debt of Pakistan. There was a dire need to lessen the dependency on foreign loans for local expenditure. Further, SBP was a regulator; therefore it should not become involved in business and should strictly restrict itself to its allotted functions. Moreover, payment for the purpose should be made by the SBP from its own resources.

Copyright Business Recorder, 2024


Comments are closed.

zaya zaya Jan 14, 2024 05:11am
It is really incompetent to be critical of others but then not tell what would you have done yourself in those circumstances that you blame others did not do; where is any corrective action and remedies. Dr Shamshad is trying to look Pius but we can see through as most people who read the article are not illiterate. Dr Shamshad show us and tell us the plan to fix all this, where are the details of your remedies?
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Az_Iz Jan 14, 2024 05:18am
That is what the politicians have done. Taken the easy way. Borrow money, to pay for imports, subsidize, sell petrol at half the price and so on.
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zh Jan 14, 2024 06:56am
PTI at least had an excuse for borrowing money .They faced two years of COVID. PDM borrowed to maintain the life style of corrupt looters.
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Wisal khan Jan 14, 2024 09:39am
Pakistan need imran khan
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Az_Iz Jan 14, 2024 10:17am
The current government does deserve some credit. Revenue, CAD, rupee valuation, remittances and exports are slowly heading in the right direction, although, there is still a long way to go.
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junaid Jan 14, 2024 10:32am
@Az_Iz, what is her plan? she is also getting loan. everyone will do so. no one has plan.
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Maqbool Jan 14, 2024 10:42am
Could we be told the exact figures taken by PTI, PDM +PPP, this caretaker govt please ? That’s important for their voters to actually know .
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Sikander Hayat Jan 14, 2024 11:03am
only word
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Amigo Jan 14, 2024 11:46am
If "extensive borrowing of forex" is crime than it must be trialled in court.
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Mehboob Ali Lalani Jan 14, 2024 12:01pm
The financial diseases cannot be cured by blame game without blue sky thinking. Borrowing of forex is a part of it. We are used to live beyond our mean. Such huge incompetence governance structures and rotten system are the bitter fruits to taste by the people, whoever saddled at the top.
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Haq Jan 14, 2024 12:17pm
Even care taker govt. is borrowing approx Rs 40 billion per day.... unsustainable !
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Bloody Civilian Jan 14, 2024 12:25pm
From where was PTI supposed to pay back loans taken by previous governments of PML-N and PPP (quasi-tenures of establishment/Army) and meet extensive defense budget (inclusive of all heads for military pensions, intelligence services, allied services/branches and main defense budget)?
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Mustafa Jan 14, 2024 12:50pm
PTI took around 31 billion USD. and PML added 30+ billion USD.. after Pervez Musharaf 3 government added around 80 billion USD plus in debt .... They should answer for such loans. ..
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Mustafa Jan 14, 2024 12:56pm
@zh, stop joking... He used funds to pump the market and to gain back popularity... COVID was good for economy... commodities went to historical low and remittance went historical high ... Pumped market to create import based GDP growth and ruined economy further ...
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Abdul Jan 14, 2024 01:57pm
@zh, 29000Cr debt in last 68 years went up by 21000 Cr in 3.5 Years and all went carrien on by PDM Allhamdoulillah we have all thieve Rulling our Country from Last 75 years Best was Musharrafs Time currenct Remaind between 57 to 65 for 8 years
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Sami Jan 14, 2024 02:40pm
@zaya zaya, easier said than done
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Faisal Kandhro Jan 14, 2024 03:12pm
@zaya zaya, the person most critical of past goverments was Imran Khan, he even brought that on international stage. Do you ever wonder why we have to 25B+ yearly? We never had to do it before 2018, why are we paying such a big amount. Is it not because PTI took loans
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Sumaroo Jan 14, 2024 03:52pm
Speaking her master's voice!
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Cool Jan 14, 2024 04:33pm
His husband was managing economy in previous government…
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Zahid Hussin Jan 14, 2024 04:38pm
Jobs powerplant generator operator
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Aslam Tanoli Jan 14, 2024 05:11pm
You are doing the same. No difference
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Nawazish Ali Jan 14, 2024 05:14pm
We are in a vicious cycle of Forex borrowings, spendings and their retirements for over the last about 50 years. A logical and fair study and analysis of this borrowing spree is required, not just the perfunctory remarks pertaining to the past five years only.
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Maqbool Jan 14, 2024 06:33pm
Remember we take a loan of usd 3 billion just to pay government Pensions. Some as Hight as 500,000 per month, yet all are Tax free . Why should rulers pay Tax , that only for the Ruled .
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Khan Jan 14, 2024 08:28pm
Ironically, the parties who ruled for about 40 years in the country instead of showing their PERFORMANCE are asking the opposition to show their performance of 3 and a half years government and that's too during the pandemic.
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zh Jan 14, 2024 10:23pm
@Faisal Kandhro, Among other, you are forgetting the circular loans.
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zaya zaya Jan 15, 2024 02:32am
@Sami, says "easier said than done" Then don't take the job, because its about doing and not about complaining; Dr Shamshad Akhtar, she is an Ex Governor of SBP, she should know a lot about the Economy and tell us the how to, in DETAiL.
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Usman Jan 15, 2024 11:04am
@zh, fundung in covid when the whole country was closed and they did notnspend on projects or upliftting public form poverty instead theybwere busy in tosha khana lootings.all you can do is blame pmln and others.we suggestbyoubshow loyalty to pakistan not to a party whose leader is even funded by the jews and indians.
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