The government has signed another commercial loan programme of $500 million with the Industrial and Commercial Bank of China, bringing the total loan it obtained from the bank to $1 billion just in three months. Last month, the government took a total of $704 million loans, taking foreign borrowings to new heights of $6.6 billion just in seven months of the current fiscal year. Reports suggest the external loans could cross $10 billion mark for the second consecutive year. As the elections are nearing, the speed of taking loans has been unwittingly revved up and there seemed no speed breaker to stop it. As the external debt and liabilities are $90 billion mark, the volume of foreign loans is now equal to 86 percent of the budgetary allocations which were approved by parliament in June last year. After investing in billions of dollars projects under the China Pakistan Economic Corridor, China has emerged as the single largest loan provider, lending a total of $1.6 billion during the last seven months. The money is equal to one-fourth of the total foreign loans the country has received during the period. Pakistan also received another $610 million under the head of project financing during the current fiscal year.
The government took the loan from the Chinese bank to support its depleting foreign exchange reserves and no one knows how the government will deal with the financial catastrophe when it will have to return the loans. The debt servicing has already been a problematic area and accepting loans from one source or the other is adding insult to injury. In the absence of increase in the industrial output, it is not a rocket science to understand that the economy is heading toward disaster. Earlier, the government had depreciated Pakistani rupee, which not only increased the volume of loans, but inflation in the country. On the other hand, the move also opened a Pandora’s Box to fight corruption, money laundering and smuggling at the same time. It is yet to be seen how the loan of $500 million will prove beneficial for the economy, but a snowball of debt servicing cannot be ruled out in the near future.
Unfortunately, the State Bank of Pakistan sometime becomes part of problem than the part of solution. The independent financial managers are still in a state of shock on the devaluation of the rupee as to why the government had taken this suicidal decision at the first place. A day is not far off when all the earning of the country will go to debt servicing.
