Foreign debt inflows
In this context, it is relevant to note that in spite of a recent upgrade by one of the three international rating agencies, a rating guided by the International Monetary Fund (IMF) which noted in the first review documents of the ongoing Extended Fund Facility dated May 2025 that external and internal risks would 'quickly eviscerate Pakistan's hard won economic stability' one may safely assume that the interest rate agreed would be higher than the market rate and, additionally, given that commercial banks typically lend for short periods the principal due may have to be factored in as repayment in the current year's reserves. In other words, the actual debt servicing for 2025-26 may already be lower than what was budgeted for the year.
The budgeted amount under Naya Pakistan Certificate was 464.9 million US dollars, and it reached a high of 1,918 million US dollars July-June 2025 which accounted for market borrowing inflows, including commercial borrowings, of 5439.34 million US dollars, higher than the budgeted 5049.26 million US dollars — a rise in spite of one billion US dollars budgeted bonds not issued, due perhaps to lack of market interest.
Time deposits cited in the statistics were 9 billion US dollars — budgeted though the corresponding disbursed column (provisional) has not been filled but the total bilateral and multilateral inflows of 5,439.34 million US dollars plus 4,297.83 million US dollars foreign commercial bank borrowings plus 1,918.06 million US dollars from Naya Pakistan Certificate gives a grand total of 11,655.23 million US dollars, which requires a clarification from EAD as to how it reached a total of 12,138.24 million US dollars as adding on the time deposit would give a grand total of 20,655 million US dollars — higher than the budgeted 19,393 million US dollars.
The EAD does not factor in the IMF disbursements; however, two observations are critical. First and foremost, the capacity of the administration to secure commercial loans from abroad has no doubt been strengthened due to the country being on an IMF programme; however, budgetary support amounted to 8,602.96 million US dollars (provisional) last year and yet this was only 54 percent of the budgeted amount of 15,965.94 million US dollars. One would hope that the government had instead opted to slash its major current expenditure components, some of which required reforms like the pension budget while others required sacrifice (salary budget of the 7 percent employed by the government). And secondly, the shortfall was filled by a rise in domestic borrowing that was accommodated by the 10 percent decline in the discount rate that led to a decline in mark-up on domestic debt by about 830 billion rupees.
To conclude, there is little evidence of the country moving towards ending the toxic tendency to borrow from abroad to meet the budgeted outlay as repeatedly stated by the Prime Minister and one can only hope that in the current year the budgeted current expenditure is slashed, which is not attributable to a lower discount rate but to actual savings by improving governance.
Copyright Business Recorder, 2025
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