EAD explains how borrowing can be productive

ISLAMABAD: The government of Pakistan signed new agreements worth $642 million as commitments, in the first quarter of the current fiscal year (July-September) 2023-24, says the Economic Affairs Division (EAD).

Official data revealed that World Bank committed $542 million (84 per cent of total commitments) and Islamic Development Bank (IsDB) committed $100 million (16 per cent) during the period under review.

The Division stated that a prudent external debt management strategy coupled with strong institutional arrangements is necessary for managing the external debt and improving the repayment capacity of the country. Debt can be productive if it is used for creating assets that generate positive returns and externalities.

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Borrowing can be productive for the economic growth of developing countries as long as the economic returns are higher than the cost of borrowed funds. While external debt is useful for the growth of the economy, dependence on external debt must be closely monitored and managed, the EAD added.

The data further shows that disbursements of $3.536 million during 1st quarter of 2023-24 were mainly under the projects and programs loans/grants from multilateral, bilateral development partners and financial institutions.

The government paid an amount of $2.404 billion from Jul-Sep 2023-24 on account of debt servicing of external public loans. This consists of principal repayment of $1.627 billion and interest payments of $777 million.

Amongst multilateral development partners, the World Bank and IsDB were the largest development partners with disbursements of USD 306 million (62 per cent of total multilateral disbursement) and USD 100 million (20 per cent of total multilateral disbursement) respectively. On the bilateral side, China disbursed the largest amount, totalling$509 million. Saudi Arabia emerged as the second largest disbursement partner dispensing $300 million for the import of oil and petroleum products.

During the first quarter Jul-Sep 2023-24, net transfers to the government’s external public debt resulted in a positive balance, totalling $1.869 billion, indicating an increase in the external public debt stock.

During the first quarter of Jul-Sep 2023-24, the disbursed amount in the shape of program financing, project financing, commodity financing, and budgetary support helped the government to support wide-ranging economic reforms, execute development activities and provide support to its balance of payments position.

Ongoing collaborations with development partners were also focused on mitigating the devastating effects of Floods-2022. A significant share; i.e., 64 per cent of the total external public debt, is secured on concessional terms with extended maturities. Hence, a prudent external debt management strategy is being followed to optimise the benefits of foreign economic assistance and bolster the overall economic resilience of the country.

As of 30th September 2023, the total external public debt of the government was $86.358 billion. Around 64 per cent of the total external public debt was obtained from multilateral and bilateral sources having concessional terms and longer maturity.

Copyright Business Recorder, 2024