Govt to get $10 billion in loans, grants in 2014-15

ISLAMABAD: The Nawaz Sharif government will receive the highest-ever foreign inflows in the shape of loans and grants of over $10 billion during 2014-15, The News has learnt.

Following the resumption of the World Bank and Asian Development Bank loans, as well as increased foreign loans and grants from bilateral creditors, the government is expecting foreign inflows of up to $10 billion against the estimates of $5.76 billion in the budget 2013-14.

“The net lending will stand at over Rs650 billion in the next budget as foreign inflows will cross the Rs1,000 billion mark and can touch Rs1,050 billion while repayment of loans in the shape of amortization will consume almost Rs400 billion,” said the official sources.

The finance ministry official claimed that the public debt would not surge despite obtaining heavy foreign loans as the government would retire its domestic debt proportionate to foreign loans. But there are certain risks as well because in case of revising downward the GDP growth, especially reduction in growth of Large Scale Manufacturing (LSM), the overall GDP growth might fall below four percent.

Then the debt-to-GDP ratio can go up instead of the official projected figures of bringing it down, said the sources.The official circles say the government is going to give a loud and clear message that there will be no more dependence on domestic banks to finance the budget deficit in a big way as had happened in the last five years when the increased demand of borrowing had resulted in a situation that the banks had started dictating terms knowing that the government had turned into a “desperate borrower”.

A senior official of the Finance Division confirmed to The News on Friday that Pakistan would become eligible for concessionary loan of $3 billion under the IDA-17 from July 1, 2014 and can get this amount within three year period. This funding, coupled with the ADB and IDB loans in the pipeline, will enable Islamabad to jack up its foreign assistance up to Rs1,000 billion against the envisaged estimates of Rs576 billion in the outgoing fiscal year.

In the budget 2013-14, the government had projected foreign inflows of Rs576 billion against the revised loan and grants figure of Rs243 billion in 2012-13.Interestingly, the foreign inflows in the first nine-month(July-Sept) period remained negative; Rs50 billion in the outgoing fiscal year as total foreign inflows stood at Rs196 billion against the repayment of loans to the tune of Rs246 billion in this period.

But the situation has changed altogether since April this year when first Saudi Arabia provided a gift of $1.5 billion in two installments and then Pakistan’s oversubscribed Eurobond fetched $2 billion in one go. The resumption of loans from the WB and ADB also helped the government to get another $1.5 to $2 billion into the national kitty.

The generous foreign inflow has increased the foreign currency reserves level to $13 billion and will touch $15 billion soon.In another important development, the finance ministry on Friday made changes in its fiscal operation for July-March period of the current fiscal year and disclosed that the budget deficit was 3.8 percent instead of the earlier released figures of 3.1 percent of the GDP for this period.

All this happened because of treatment of $1.5 billion from Saudi Arabia, as earlier the Finance Ministry had included it into the figures, resulting into fattening this head up to Rs157 billion for this period.

Now in its explanatory note on its website, the Finance Ministry states: “The high statistical discrepancy is due to the impact of a transfer receipt from a friendly country amounting to Rs157 billion which has been kept separately in an account Pakistan Development Fund. Without this, impact of statistical discrepancy would come to Rs14 billion which would imply a deficit of Rs969 billion i.e. approximately 3.8% of GDP which is significantly less than the last year’s deficit of 4.6% of GDP.”