Government’s Rs32 Trillion Borrowing Plan

The Pakistani government announced on Tuesday its need for Rs32 trillion in loans for the fiscal year 2024-25, relying heavily on rollovers from foreign banks and bilateral lenders. The success of this borrowing plan is contingent on the timely approval of the International Monetary Fund (IMF) programme and continued financial support from China.

Key Aspects of the Borrowing Plan

The Ministry of Finance unveiled its annual borrowing strategy, revealing that the government will require Rs8.5 trillion to finance the budget deficit and an additional Rs23.4 trillion to repay maturing debt. The total borrowing requirement, excluding the State Bank of Pakistan’s (SBP) obligations, amounts to Rs32 trillion.

The SBP itself needs to settle $3.7 billion in debt owed to the UAE, $4.2 billion in Chinese trade finance, and $900 million in maturing IMF debt, totaling Rs2.6 trillion. This plan relies heavily on rolling over maturing debt, which has escalated the nation’s debt burden and increased interest payment costs.

Dependence on IMF and China

The government’s borrowing plan is heavily reliant on the IMF’s approval of a $7 billion bailout package and China’s willingness to roll over nearly $7.9 billion in debt. Finance Minister Muhammad Aurangzeb had expressed confidence in the IMF’s approval by the end of August, but the IMF’s schedule for the month does not yet include Pakistan, casting doubt on the minister’s claims.

Domestic vs. Foreign Financing

The plan includes Rs8.5 trillion needed for budget deficit financing, with 92% expected to come from domestic sources. Only 8%, or Rs666 billion, will be sourced from foreign loans—a significant drop from the historical average of 20%. Securing timely rollovers of foreign loans, particularly from China, remains a significant challenge.

The government plans to raise an additional $1.2 billion in new commercial debt, though progress has been slow due to high costs. It also aims to issue Panda Bonds worth $300 million in the Chinese market and raise $700 million through global green bonds.

Potential Risks and Debt Management Strategies

The Rs32 trillion borrowing plan is subject to potential risks due to domestic and international macroeconomic conditions. The government plans to avoid net issuance through treasury bills, instead refinancing maturing loans through long-term government securities like Pakistan Investment Bonds and Government Ijara Sukuk. To manage floating rate debt exposure, the government aims to increase the issuance of fixed-rate debt securities.

Conclusion

Pakistan’s Rs32 trillion borrowing plan for fiscal year 2024-25 underscores the country’s reliance on international financial support, particularly from the IMF and China. The plan’s success hinges on timely financial rollovers and managing the nation’s growing debt burden. The government faces significant challenges in securing foreign financing, raising new commercial debt, and managing domestic economic conditions.