According to the Economic Affairs Division (EAD), which tabulates inflows into the country from all sources, the government's reliance on borrowing from foreign commercial banks rose to a whopping 4.3 billion dollars in 2016-17 - borrowing that is at commercial rates with a very short amortization period that no doubt accounted for net outflows instead of net inflows from the second quarter of last fiscal year. This money was borrowed for balance of payment (BoP) support. In other words, with a continuous decline in exports (attributed to lower commodity prices in the international market by the Pakistan government with donor agencies/exporters claiming that the major reason is an overvalued rupee and delay in refunds) and remittances (due to the ongoing recession in oil exporting countries where the bulk of our emigrant force is employed) and rising imports (an outcome of an overvalued rupee) the Dar-led Finance Ministry opted to borrow from whatever source available at whatever cost to the economy to shore up reserves rather than to focus on measures to encourage exports and discourage imports. It should be a matter of serious concern for our parliamentarians, especially those in the opposition, that the reliance on short-term borrowing from the external commercial banking sector has gathered momentum subsequent to the September 2016 completion of the three-year Extended Fund Facility by the International Monetary Fund (IMF) - a reliance which accounts for net outflows instead of net inflows by December last year and which has the potential to enhance the country's indebtedness to unsustainable levels.
Two other disturbing policy measures need to be highlighted. First and foremost, the Finance Ministry, as per EAD, surpassed the budgeted reliance on foreign assistance for last year - from 819.6 billion rupees to 996 billion rupees - reflecting a rise of nearly 22 percent which, in turn, reflects the failure of the government to either meet its budgeted revenue or budgeted expenditure. It is also relevant to note that the end of the year figure projected for borrowing from foreign commercial banks as noted in the budget documents for the current fiscal year was lower at 389 billion rupees or in effect the government's budgetary estimates released end-May when the budget was presented to parliament this year are off by nearly 13 percent which makes further mockery of the data presented in our budget documents.
Secondly and equally disturbingly, the rise in reliance on commercial borrowing is reflective of the fact that sources of multilateral and bilateral assistance have shriveled up in relation to expectations when the budget was presented less than two months ago. One reason is the Trump administration's refusal to reimburse Pakistan for the Coalition Support Fund (CSF) as releases under this head now require a certification by Secretary of Defense Jim Matthis that Pakistan is taking sufficient action against the Haqqani network, a certification that was refused by Matthis. Additionally, there appears to be a consensus amongst multilaterals that the government has abandoned the reform agenda (with the do-more mantra on energy and tax sector reforms resurfacing in recent reports by the IMF and the United Nations Development Programme). And without the Fund's active support for the reform agenda, without or without an ongoing programme, multilaterals as well bilaterals hesitate to extend budgetary support though project-specific assistance continues. To conclude, there is a need for the federal cabinet and the parliament take urgent cognizance of the rise in reliance on very expensive loans which should be procured after extremely careful consideration rather than to simply balance the books due to failure to keep within the unrealistic budgeted projections of revenue and expenditure.
Comments
Comments are closed.