Amir Khan

Pakistan's external loan disbursements were only 47 percent of the budgeted disbursements in the Fiscal Year 22-23, resulting in a series of economic consequences, reports WealthPK quoting data from the Ministry of Economic Affairs. According to the data, the adverse effects of low loan disbursements included reduced foreign exchange reserves, currency depreciation, surge in inflation, and increased reliance on borrowings from multilateral and bilateral creditors by the government. Talking to WealthPK, Dr. Idrees, economic researcher at the Quaid-i-Azam University, said the external loan disbursements in the previous fiscal year were disappointing, reaching only $10.8 billion against the budgeted estimates of $22.6 billion.

“The inability to revive the IMF's stalled bailout package played a pivotal role in this deficit. As a result, the forex reserves depreciated substantially from $8.395 billion in July 2022 to a concerning $4.46 billion in June 2023. The forex reserves even plummeted to their lowest level of $3.11 billion in January 2023, primarily due to high payments of external loans,” he said. Dr Idrees said the depreciation of rupee against the dollar was a direct consequence of the country's economic struggles. Over the last fiscal year, the local currency depreciated from Rs204 to Rs290 against the greenback. This significant devaluation led to a flood of inflation and uncertainty in the economy, thus further exacerbating the economic challenges faced by the nation.

“The incumbent government sought financial assistance from various multilateral creditors but faced disappointing outcomes. Compared to the estimated $7.6 billion, the government received only $5.2 billion in loans from these institutions, marking a 31 percent shortfall,’’ he explained. Continuing, he said the Asian Development Bank (ADB) emerged as the largest creditor, extending $2.3 billion during the fiscal year, while the World Bank disbursed $2.1 billion, falling short of the annual estimates of $2.6 billion. The Islamic Development Bank's $161 million for oil financing was a far cry from the anticipated $1.2 billion.

He pointed out that Pakistan's woes with foreign commercial loans continued, where disbursements were a meagre $2.2 billion, amounting to a staggering 71 percent less than the budgeted amount of $7.5 billion. The failure of the planned $2 billion sovereign bond-based borrowing added to the financial strain, as poor credit ratings and expected high interest costs hindered the investors' interest in the country. Pakistan did receive some relief from bilateral creditors, with disbursements amounting to $1.5 billion against the budgeted estimates of $970 million. The higher disbursements were attributed to the Saudi Arabian oil facility, which provided $1.2 billion worth of equal oil against the budgeted amount of $800 million, he added.

The economy faced a challenging Fiscal Year 2022-23, as it struggled to secure the budgeted external loans. The failure to revive the IMF's bailout package, coupled with poor credit ratings, led to low disbursements from major international creditors. This, in turn, resulted in currency depreciation, inflation, and an increase in economic uncertainty. Concluding, he said Pakistan must focus on strengthening its economic fundamentals and improving its creditworthiness to attract the much-needed external financial assistance and bolster economic stability.

Credit: INP-WealthPk