ISLAMABAD - Pakistan has repaid massive $5.039 billion on account of debt servicing of external public loans during first six months (July to December) of the current fiscal year, which has declined the country’s foreign exchange reserves.

The government paid an amount of $5.039 billion during July – December 2021 on account of debt servicing of external public loans. This consists of principal repayment of $4.200 billion and interest payments of $839 million. The breakup of $5.039 billion showed that Pakistan paid $1.732 billion to the commercial banks, $1.307 billion against bonds, $585 billion to International Monetary Fund (IMF) and repaid $515 million to the Asian Development Bank (ADB) in July-December 2021-22. According to the official documents of the ministry of Economic Affairs, Pakistan had repaid $461 million to the World Bank and $281 million to the Islamic Development Bank (IsDB (Short Term). The country has paid $29 million to China, $10 million to Kuwait and $120 million to others during first six months of the ongoing financial year.

The loan repayment and financing of current account deficit are two main reasons behind decline in foreign exchange reserves of the country. The government is continuously taking foreign loans to build the country’s foreign exchange reserves. Pakistan had made disbursements of $9.131 billion during July – December 2021 which was mainly under the projects and programs loans/grants from multilateral, bilateral development partners and financial institutions.

Government is continuously taking foreign loans to build country’s foreign exchange reserves

During July to December period of FY 2021-22, the Government of Pakistan signed new agreements worth $8.481 billion as commitments. The breakup showed that Pakistan had taken $2.484 billion from foreign commercial banks, $1.956 billion from multilateral development partners, $3 billion as safe deposits, $1 billion committed as of Eurobonds and $1.bllion from international capital market through tap-issuance. Among the multilateral development partners, the following banks emerged as the largest partner in terms of new commitments of foreign economic assistance, Islamic Development Bank with USD 834 million (USD 762 million as short term and USD 72 million as long term), ADB with USD 800 million (40% of multilateral partners) and the World Bank (16% of multilateral partners).

For the period under review, net transfers to the government’s external public debt were USD 4.772 billion. The external loan inflow was recorded at $8.972 billion and external loan outflow stood at $4.2 billion leaving the net transfers at $4.772 billion. Net transfers indicate any increase or decrease in the external public debt stock and is calculated as the difference between the external public loans received and their repayments made to the foreign creditors during a specific period.