Review of foreign loans during July-Dec 2020.

Byline: S. Kamal Hayder Kazmi

Statistics show that during July-December of fiscal year 2020-21, Pakistan has received $5.7 billion in external loans from multiple financing sources. Total inflows were 46 percent of the annual budget estimate of $12.2 billion for the ongoing fiscal year. In December, the Government of Pakistan received $1.2 billion in foreign loans, counting $434 million from commercial banks, which are the most expensive loans. Out of the $5.7 billion, an amount of $2 billion or 36 percent of the total loans were on account of foreign commercial loans. Researchers reveal that Pakistan over the years has failed to collect enough revenues to finance its budget. Consequently, it has been facing the problem of twin deficits and resultantly to finance their developmental activities. Government of Pakistan has to rely on public external and domestic debt. The positive effects of public debt relate to the fact that in resource-starved economies debt financing if done correctly leads to higher growth and adds to their capacity to service and repay external and internal debt. They further reveal that the negative effects work by two main channels - i.e. debt overhang and crowding out effects.

Presently in Pakistan nearly 87 percent of the foreign loans were for budget financing and building the foreign exchange reserves, which means that these have not been utilized for creating assets. The country received about $5 billion on account of budget financing and balance of payments support, which the government would be paying back after taking new loans as no revenue-generating assets were created through using those loans.

Statistics show that project financing was a mere $754 million or 13 percent, which should be a matter of concern for the government. The government received $434 million in new foreign commercial loans in December. Multilateral development partners disbursed $2.4 billion in foreign...