At a time when the country is facing the challenge of current account deficit, declining exports and under performance of the industrial sector, the government has obtained another $700 million loan from a European bank to offload pressure on the foreign currency reserves. The latest loan obtained at an interest rate of 4.47 percent has brought the total borrowings to $9 billion in one year which is the highest figure in a single year in the history of the country. However, the government has accepted the loan on the grounds that the markup on the borrowing is lower than the returns the country paid to the Sukuk and Euro bonds holders. Incidentally, the government will also have to pay 0.5 percent per annum as fee to the World Bank for providing policy-based guarantees. It has brought the borrowing cost to nearly five percent. At least 0.25 have apparently been paid to the bank as upfront fee. The lion share of the loans has gone under the head of debt servicing. The wholesale borrowing policy shows how much the current leadership is able and capable of running the financial affairs of the country.
The borrowing from foreign commercial banks was introduced by the previous Pakistan People’s Party government and the PML-N has continued this policy after coming to power in 2013. This borrowing, which is often done without competitive bidding, has become a sport for the financial managers of the country. According to World Bank Country Director for Pakistan Illango Patchamuthu, two World Bank guarantees have helped Pakistan secure over $1 billion in international commercial financing at very attractive rates last week. He also claimed that the World Bank guarantees have helped Pakistan expand market access, saving $120 million in interest payments. The government ministers are not tired of claiming remarkable growth in GDP during the current government, but the factual position is that the industrial and financial sectors have failed to perform up to the expectations. On another note, the policymakers find it an easy way to borrow from foreign commercial and meet external requirements of the country. As a result, the country is heading toward financial disaster.
If the government is serious in uplift of the country, it will have to encourage agriculture and industrial sectors, decrease the number and rates of taxes and improve energy supply to the industries. Otherwise, the nation will continue to oscillate between hope and despair.
