Loans galore!

Data released by the Economic Affairs Division (EAD) reveals that the untenable policy of borrowing from the foreign commercial banking sector is continuing even after Ishaq Dar became non-functional as the country's finance minister dated to the Panama Papers case verdict on 28th July 2017 - untenable because it is at a high rate of return and the amortization period is very short thereby making this source of funding economically very costly for any state. This is particularly so for an economy like Pakistan that is currently facing several challenges, including a deteriorating current account balance, eroding foreign exchange reserves and a growth rate that remains hostage to the government's sustained heavy reliance on expensive foreign and domestic borrowing that, in turn, is raising debt servicing and repayment of loans as and when due - a component of current non-development expenditure.
Pakistan, as per EAD, signed 1.172 billion dollar short-term loan agreements with commercial banking sector abroad during the first four months of the current fiscal year (July-October), against the one billion dollars budgeted from this source for the entire year, with 1.022 billion dollars already credited. If this trend continues, and there is no evidence that the Abbasi administration is considering any alternative non-borrowing source for generating funds then total commercial borrowing can be projected at 3 billion dollars by June 2018. However, given that Ishaq Dar procured over 4 billion dollars last fiscal year from foreign commercial banking sector subsequent to the end of the International Monetary Fund programme in September 2016 (which led to the cessation of budget support from multilateral development financial institutions due to concerns that the country may not adhere to the reform agenda agreed with the Fund), Business Recorder projects total reliance from this source in excess of 5 to 6 billion dollars in the current fiscal year.
The Finance Division issued a press statement on Tuesday 28th November in which it noted that 1.5 billion dollar sukuk/bonds will be issued. This too is a source of serious concern for this newspaper, as it no doubt would be for independent economists, for two reasons. First, no mention was made of the rate of return at which the bonds/sukuk would be issued which, unfortunately, is a reflection of the continuing tendency of the PML-N government to be non-transparent in all economic matters, including government-to-government deals.
Secondly, Miftah Ismail, Special Advisor to the Prime Minister on Economic Affairs, reportedly led the Pakistan delegation on road shows in three major financial capitals of the world last week to assess market response and, at the time, reports indicated that the government was considering issuing Eurobond/sukuk valued at from 2 to 3 billion dollars - the sum total of the revenue shortfall projected for the current year. However, this reduction in the total value of bonds/sukuk to be issued from earlier estimates to 1.5 billion dollars shows that BR's caution was fully vindicated, notably that with political uncertainty at its peak, subsequent to Nawaz Sharif's disqualification and serious criminal references filed against Dar, the rate of return would have to be much higher than even the higher than the market rate offered by Dar in 2014 of 8.5 percent for a 10-year Eurobond and a 7.5 percent for a five-year Eurobond.
These are extremely disturbing decisions being taken by the Abbasi administration and one can only hope that parliament plays its due role in checking this ever-rising reliance on borrowing that is essentially not economically sustainable.