Govt report notes borrowing is productive if it creates income-generating assets

Economic Affairs Division says Pakistan signed deals for $7.228 loan during July-March 2022-23

ISLAMABAD (Web Desk) – Pakistan inked new agreements for $7.228 billion loan with development partners during the July-March period of 2022-23, says a latest official report which also noted that the borrowing could be productive for economic growth in developing countries if the returns were higher than the cost.

The report “Third Quarterly Report on Foreign Economic Assistance July-March 2022-23” compiled by the Economic Affairs Division says the composition of external public debt remains satisfactory as more than two-thirds of the total external debt is on concessional terms with a longer maturity.

Hence, the Economic Affairs Division is actually negating the critics who have been citing high rate of return as the main cause behind the current economic turmoil.

But one-fifth of the external debt – commercial borrowings and bonds – entails higher interest rates.

Moreover, Pakistan’s total external debt stood at $85.18 billion on March 31, 2023 against $86.56 billion on December 31, 2022, translating into a $1.38 billion reduction.

Out of the total external public debt, the government owed $64 billion to multilateral and bilateral development partners including the International Monetary Fund (IMF).

The report also calls for a prudent external debt management strategy coupled with strong institutional arrangements to managing external debt and improving the repayment capacity of the country.

For the positive impact of borrowing on economic growth, the report notes that the focus of such strategy should be on creation of income-generation assets.

These views in fact seconds the approach of PML-N supremo Nawaz Sharif and his favourite financial czar Ishaq Dar who have been defending the approach adopted during the 2013-17 before the removal of former from the prime minister’s office.

It is only the political engineering in the shape of the PTI in government which reversed all the gains they had made and pushed the country backward, they have been arguing.

Another important point revealed by the report as suggested by those highlighting the PTI government’s economic mismanagement is that the main reasons for higher commitments in 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).

But the coalition government reversed the trend during the first nine months of the last fiscal year by managing to make higher commitments with its multilateral development partners ($5,289 billion) as compared to $2.440 billion during the corresponding period of 2021-22.

Out of the total commitments of $7.228 billion, an amount of $2.767 billion was earmarked as project financing, $2.400 billion for programme financing, $1.161 billion for commodity financing and $900 million for budgetary support to meet the liquidity requirements of the government.

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