Govt borrows $514.55m from foreign commercial banks

[The Accountant]

It’s a bad situation if we’re still not deleveraging despite significant cuts to public spending and slowing growth.

I hope our government realises that they shouldn’t trade fiscal sustainability for current account stability alone. At least the latter was off the table in the past. They have a fine balancing act task and I hope things get better.

Unfortunately they lack options in short term. The situation started deteriorating in 2016 whereas 2018 was the worst. I personally feel that it was planned effort to destroy fiscal space for the upcoming government. We didnt feel the heat during 2017 and 2018 as the gap was cleared by declining reserves but situation got out of control in second half of 2018 and thus they initiated rupee depreciation just before leaving the government.

However, situation is really bad and export import balance needs to be addressed even at a more rapid pace.

 

[Jungibaaz]

Unfortunately they lack options in short term. The situation started deteriorating in 2016 whereas 2018 was the worst. I personally feel that it was planned effort to destroy fiscal space for the upcoming government. We didnt feel the heat during 2017 and 2018 as the gap was cleared by declining reserves but situation got out of control in second half of 2018 and thus they initiated rupee depreciation just before leaving the government.

However, situation is really bad and export import balance needs to be addressed even at a more rapid pace.

I don't see this as intentional or planned. Agree on all the rest.

 

[BATMAN]

Too much non sense being spewed to confuse the gullible public.

In sensible world, borrowing is always against development project, which would facilitate public indiscriminately and might as well generate profit in return, either by controlling waste or facilitating economic activity. There's always a feasibility presented to lending institutions before they hand out borrowings.
When politicians are incapable to formulate any positive policy on paper or are corrupt, they would certainly make efforts to hide such pointless borrowings from private sources.

How nation need to judge the borrowings is to see, where those borrowings were spent and how much revenue has been generated from those projects.
If those projects are being failed, cancelled and delayed by following govt. without giving justifications,.... than there must be investigation.

Why NAB is failing to audit delays in those development projects is beyond comprehensions, may be there shall be a NAB for NAB as well.

Clearly current govt. is not willing to talk about the spending of previous borrowings, and are also not willing to talk about the corruption of the previous god father of PTI, aka Asif Ali Zardari.

Pakistan's problem surely lies some where else, and the tools being used to cover up is confuse people by misleading statements and make sure there's no audit of what they are talking about.

Didn't PTI regime claimed increased revenues? What's the source? Why $billions of annual remittances are failing to strengthen Pak rupee... may be PTI's (fake) financial expert explains us?

Last but not least the over all direction can be seen on ground, and i'm sick of nonsense invented by Asif Ali Zardari team that Musharraf was keeping rupee strong ''artificially'' and only he was our wisher who wanted to bring us back to real life. Now once more same justification is being given out by those who protested for resignation of Musharraf.

 

[The Accountant]

Too much non sense being spewed to confuse the gullible public.

In sensible world, borrowing is always against development project, which would facilitate public indiscriminately and might as well generate profit in return, either by controlling waste or facilitating economic activity. There's always a feasibility presented to lending institutions before they hand out borrowings.
When politicians are incapable to formulate any positive policy on paper or are corrupt, they would certainly make efforts to hide such pointless borrowings from private sources.

How nation need to judge the borrowings is to see, where those borrowings were spent and how much revenue has been generated from those projects.
If those projects are being failed, cancelled and delayed by following govt. without giving justifications,.... than there must be investigation.

Why NAB is failing to audit delays in those development projects is beyond comprehensions, may be there shall be a NAB for NAB as well.

Clearly current govt. is not willing to talk about the spending of previous borrowings, and are also not willing to talk about the corruption of the previous god father of PTI, aka Asif Ali Zardari.

Pakistan's problem surely lies some where else, and the tools being used to cover up is confuse people by misleading statements and make sure there's no audit of what they are talking about.

Didn't PTI regime claimed increased revenues? What's the source? Why $billions of annual remittances are failing to strengthen Pak rupee... may be PTI's (fake) financial expert explains us?

Last but not least the over all direction can be seen on ground, and i'm sick of nonsense invented by Asif Ali Zardari team that Musharraf was keeping rupee strong ''artificially'' and only he was our wisher who wanted to bring us back to real life. Now once more same justification is being given out by those who protested for resignation of Musharraf.

Rather than emotional speech and text wothout numbers and facts can you please reply to my post.

Furthermore while Shahbaz and Nawaz completeky in bed with Zardari and Moulana you still calling zardari father of PTI means u r a patwari without any honor

 

[KhanBaba2]

I don't think there is any cause to be worried. The IMF has clearly said that the economy is going wonderfully well. All parameters are satisfied very well.

 

[Nilgiri]

CPEC is either on the basis of loan or in the form of investment. So it cannot result in current account deficit as in case of loan the amount is not to be paid yet for imported items and in case of investment again the amount will be paid directly by the investing party directly from China. CPEC is not resulting in outflow yet as outflow will occur at the time of loan repayment or dividend repayment in case of investment.

This depends actually (on the details, objectives and capacities of loan-giver and receiver in the projects/agenda etc).

Say China gives a billion USD to Pakistan as a loan for building a stretch of road (as example).

What portion of this loan is used to import things (goods and services) on world market (and one would think mostly from China) to help in executing the project? Road machinery, hiring supervisors for overseeing etc etc compared to what can be "converted" to PKR (and equivalent forex USD amount "locked" into SBP account) for use domestically in provision for what Pakistan can locally provide (say raw materials like gravel, aggregate and also the local labour etc).

The former portion will have its impact on current account deficit for sure...since its just the (initial) capital account flow "transferring" there in immediate term....rather than accumulating in forex like latter portion. How parts of those are also accounted by way of ownership of assets also depends on the project specifics given its mostly JV etc.

Basically in a nutshell if with the loans given by China, the Chinese do not own everything that the loan is used to buy (and this is going to be the case obviously)....there is some% automatic transference to the current account....since Capital + Current must sum to zero. This also governs the loan "repaying", since that would just be the reverse (i.e deleveraging one side and leveraging other side respectively from perspective of Pakistan asset ownership/flows in what has been injected earlier).

@Chak Bamu @VCheng @Oscar @Jungibaaz

 

[VCheng]

This depends actually (on the details, objectives and capacities of loan-giver and receiver in the projects/agenda etc).

And the said details about CPEC have never been disclosed, so any analysis by definition must be conjectural, and therefore best avoided, specially in the prevailing climate regarding certain topics.

 

[The Accountant]

This depends actually (on the details, objectives and capacities of loan-giver and receiver in the projects/agenda etc).

Say China gives a billion USD to Pakistan as a loan for building a stretch of road (as example).

What portion of this loan is used to import things (goods and services) on world market (and one would think mostly from China) to help in executing the project? Road machinery, hiring supervisors for overseeing etc etc compared to what can be "converted" to PKR (and equivalent forex USD amount "locked" into SBP account) for use domestically in provision for what Pakistan can locally provide (say raw materials like gravel, aggregate and also the local labour etc).

The former portion will have its impact on current account deficit for sure...since its just the (initial) capital account flow "transferring" there in immediate term....rather than accumulating in forex like latter portion. How parts of those are also accounted by way of ownership of assets also depends on the project specifics given its mostly JV etc.

Basically in a nutshell if with the loans given by China, the Chinese do not own everything that the loan is used to buy (and this is going to be the case obviously)....there is some% automatic transference to the current account....since Capital + Current must sum to zero. This also governs the loan "repaying", since that would just be the reverse (i.e deleveraging one side and leveraging other side respectively from perspective of Pakistan asset ownership/flows in what has been injected earlier).

@Chak Bamu @VCheng @Oscar @Jungibaaz

Altough the details of CPEC loan and investment are bit vague but the claim that the current account deficit can also be evaluated from trade statistics.

Here are the few trade statistics shiwing following trends:

1. Import is increasing for all sectors almost with the same rates and there is not a massive increase in imports if capital goids


2. Core of the problem is declining exports during past 5 years whereas imports keep on increasing at a consistent pace. Exports declined from 54% of sales to just 42%.

Besides import of power plants most of the cpec investment are in the local sectors of cement road material dam constructions etc.

 

[Nilgiri]

Altough the details of CPEC loan and investment are bit vague but the claim that the current account deficit can also be evaluated from trade statistics.

Here are the few trade statistics shiwing following trends:

1. Import is increasing for all sectors almost with the same rates and there is not a massive increase in imports if capital goids


2. Core of the problem is declining exports during past 5 years whereas imports keep on increasing at a consistent pace. Exports declined from 54% of sales to just 42%.

Besides import of power plants most of the cpec investment are in the local sectors of cement road material dam constructions etc.

There is (merchandise) import spike in just one year (2016 - 2017) which I believe is somewhat linked to a bulk impulse injection/demand from CPEC:

https://data.worldbank.org/indicator/TM.VAL.MRCH.CD.WT?locations=PK

But I checked a bit more, and its mostly a bump from energy imports from Middle East. So in relative sensitivity in CAD decline, you are broadly correct.

Very specifically, capital goods from specifically China increased by around 800 million USD (From 6.4 to 7.2 billion) in this time period. Overall capital goods import increased from 11.8 bn to 13.6 bn that year. (Numbers taken from wits.worldbank.org)

That accounts for about 7% of the spike (china capital goods specifically) and 16.5% of spike for total capital goods. Energy import accounted for 36% of the spike.

This also explains the moderation in the next year (2017-2018) spike as energy prices settled at lower price.

Some of these numbers may not be 1:1 with SBP figures given the fiscal years used are different.

CPEC related services, I am not sure what the breakdown is, but services import (in total) more or less is steady for Pakistan over the years at around 10 billion USD in recent years:

https://data.worldbank.org/indicator/BM.GSR.NFSV.CD?locations=PK

 

[nahtanbob]

Govt borrows $514.55m from foreign commercial banks

ISLAMABAD - Pakistan had borrowed $514.55 million from foreign commercial banks in first quarter (July-September) of the current fiscal year 2019-20.

The federal government had budgeted to borrow $2 billion foreign commercial loans during ongoing financial year. The government had borrowed more than 25 percent ($514.44 million) in the first quarter. Borrowing $514.55 million is part of the government’s overall borrowing from multilateral and bilateral creditors and commercial banks in July-September period that stood at $2.08 billion.

The government of Pakistan had projected to borrow $12.957 billion from multilateral and bilateral creditors and commercial banks in the year 2019-20. However, borrowing from International Monetary Fund (IMF) is not part of the $12.957 billion. According to the data of Economic Affairs Division, the country borrowed $1.017 billion from multilateral, $1.418 billion from bilateral and $514.55 million from commercial banks during first quarter of the current fiscal year, making the total borrowing at $2.08 billion. The amount had not included $991 million, which the government had received from the IMF on completion of all prior actions committed by Pakistan before signing the fund programme.

The data showed that government borrowed $514.55 million from foreign commercial banks compared to $70 million during the same period of last year. China disbursed $261.75 million in the first quarter of fiscal year 2019-20. The Islamic Development Bank disbursed $303.68 million in July to September out of the total of $1.1 billion budgeted for the current fiscal year. Asian Development Bank (ADB) disbursed $552.16 million, United Kingdom (UK) $93.94 million, World Bank $83 million, International Fund for Agricultural Development (IFAD) $23.31 million, USA $14.54 million and Japan $15.95 million in the first three months of current fiscal year.

The amount of borrowing from external sources would increase in the months to come. The ministry of finance had already initiated the process of issuing Eurobonds and international Sukuk to raise the foreign exchange reserves of the country. Pakistan has planned to raise at least one billion dollars from international market by issuing Sukuk bonds in next couple of months that would help in building the country’s foreign exchange reserves

The government borrowing would increase in the years to come. The International Monetary Fund (IMF) in its report, the Fiscal Monitor 2019, had projected that Pakistan’s general government debt at 76.7 percent of the GDP in last fiscal year. However, it estimated that debt would further go up to 78.6 percent in ongoing fiscal year (FY20). Later, from next year, the debt would start declining and projected to come down to 76.1pc of GDP. The debt-to-GDP ratio will further reduce to 72.5 percent in FY22 followed by 69 percent in FY23 and 65.4 percent in FY24.

https://nation.com.pk/06-Nov-2019/govt-borrows-514-55m-from-foreign-commercial-banks

the interest rate and other terms will be important in telling whether the whole thing makes sense