Rise in external borrowing

According to the data released by the Economic Affairs Division (EAD), the Abbasi-led administration procured 3.8 billion dollars in loans between September and December 2017. This raised the country's reliance on total loans and liabilities from 83 billion dollars by end June 2017 to 88.89 billion dollars by December 2017. This implies that while during the first quarter of the current fiscal year total loans and liabilities were 2.09 billion dollars by the second quarter reliance on loans and liabilities increased to 3.80 billion dollars - a disturbing trend.
This is all the more disturbing when one considers that the government's borrowing of 1.16 billion dollars from the external commercial banking sector is at high rates of return with low amortization period. This effectively implies that payment of interest on these loans as well as repayment as and when due would increase the budgeted current expenditure significantly; which, in turn, would generate a greater need to procure loans before the end of the current fiscal year.
A credit rating agency gauges an entity or a country's creditworthiness and in this context, it is relevant to note that Standard and Poor's credit rating for Pakistan is B with stable outlook (dated 31 October 2016), Moody's last set our rating at B3 with stable outlook (dated 11 June 2015); however, in 25 January 2018 Fitch reported a rating of B with a negative outlook. Fitch acknowledged a growth rate of 5.5 percent in the current year, sustained on the back of recent CPEC investments, improvement in electricity generation, though it added that energy costs were higher, that would address capacity constraints and help manufacturing and export sectors - claims that the PML-N administration has repeatedly made as proof of its astute handling of the economy.
However, Fitch justifies its negative outlook by noting that, "Pakistan has been unable to sustain the gains made under the three-year IMF Extended Fund Facility which ended in September 2016. The credit rating cited a fall in foreign exchange reserves coupled by widening fiscal deficit as a major indicator of reversals made after the IMF's programme ended in Sep 2016." The rating agency warned that reserves may decline to as low as 16.8 billion dollars by the end of the current fiscal year unless "currency flexibility wasn't followed and tightening of macro policies to restrain domestic demand wasn't enforced," though State Bank's decision to loosen its grip over the exchange rate in the aftermath of Ishaq Dar's departure from the country was lauded. The report further noted that current account deficit is attributable to increase in China Pakistan Economic Corridor-based imports, stagnant exports and weak macroeconomic position while predicting a widening of the current account deficit to 4.7 percent of Gross Domestic Product by the end of June 2018. And most disturbingly, Fitch highlighted structural weaknesses linked to poor governance with losses in state-owned entities accumulating, particularly in distribution companies (Discos). And then there is the looming political uncertainty due to the forthcoming elections which would fuel uncertainty in the economic arena.
To conclude, the rising reliance on borrowing is raising the budgeted debt servicing costs to unsustainable levels which, in turn, accounts for the negative outlook by Fitch. It is imperative for the government to begin to revisit this reliance by prioritizing economic as opposed to political considerations. Unfortunately, however, there is no precedence in our history when administrations place economic considerations above political considerations.