Foreign Aid

Since independence aid inflow to Pakistan has a strong association with geo-political interest of
donors. Each successive government in Pakistan relied on foreign aid to finance a significant
proportion of investment and import requirement for self-sustaining economic growth. Pakistans
dependence on foreign aid started in the 1950s. However, gross foreign aid inflows were
negligible during the fifties but in the first half of the sixties witnessed a rapid increase.

The increase in aid inflow during the 1960s is connected with Pakistans signing of mutual
defense assistance agreements with the US in the cold war era. Aid inflow of the 1980s can be
visualized in perspective of the Afghan war. In the 1990s, economic assistance to Pakistan was
cut off by the US and other multilateral donors when the Afghan war ended. Aid inflow to
Pakistan was further dropped down after the nuclear tests in 1998 and the military takeover in
1999. However, after 9/11 aid inflow is a result of closer Pak-US ties. Of course, the United
States is just one of many countries and institutions that provide financial assistance to Pakistan.

Figure 1: Obligations and Loan Authorizations, in $US millions

Foreign Loans

In 2016-2017, Pakistan obtained a record high $10.1 billion in foreign loans as it looked to repay
old debt and support foreign exchange reserves after the governments failure to mobilize non-
debt creating foreign inflows. About 37% or $3.9 billion of the total external borrowing came
from China alone. This includes $2.3 billion in commercial loans and other $1.6 billion under the
bilateral economic assistance. The $10.1 billion loans that include a record breaking $4.4 billion
short-term foreign commercial loans as well were obtained during fiscal year 2016. This is the
first time in the history of Pakistan that the government has taken over $10 billion as fresh
foreign loans in a single year. About $4.4 billion of these loans were used to repay previous
loans. The loans taken this year were 26.3% ($2 billion) higher than the governments own
estimates it had placed before the parliament in June last year.

Since the PML-N government came into power, the countrys reliance on non-conventional
borrowings has rapidly grown. By including $1 billion Sukuk bonds borrowing, the total non-
conventional borrowing in the last fiscal year was equal to 52.5% of the total external loans.

Historically, the bilateral and multilateral modes of foreign financing were the preferred options
for the successive governments. However, during the last fiscal year, bilateral loans stood at $2.1
billion and these predominantly came from China which gave $1.6 billion loans under this
category. The bilateral economic assistance stood at about one-fifth of the total fresh borrowings.

Similarly, the loans by the multilateral lenders were recorded at $3.13 billion or 29.2% of the
total assistance. More than half of the multilateral assistance came from Asian Development
Bank that gave $1.6 billion in fresh loans. However, loans from the World Bank stood at $958
million and were only 65% of the governments budgetary estimates.

Declining exports were one of the main reasons behind the growing reliance on foreign lenders,
in the last fiscal year, the exports stood at only $20.44 billion, which were just 6.7% of the total
size of the economy.

During the fiscal year 2016-17 -the current account deficit had widened to $12.1 billion or 4% of
the GDP, said the central bank.
To bridge the deficit gap, the government resorted to reckless borrowings as it wanted that the
implications on the official foreign currency reserves should be minimal. Still, the central bank
held official foreign exchange reserves fell by $2 billion to $16.1 billion by June 30.

For the new fiscal year 2017-18, the International Monetary Fund has said that Pakistans gross
external financing requirements would be $16.2 billion. The $16.2 billion figure has been
worked out by assuming that the current account deficit will be equal to 3.2% of the GDP or
$10.1 billion. The external debt payments including short-term have been estimated at $6.2
billion.

Domesti
Domestic External Public Domestic External Public c External Public
Year Year Year
Debt Debt Debt Debt Debt Debt Debt Debt Debt

(Rs. in billions)

FY71 14 16 30 FY87 248 209 458 FY03 1,895 1,800 3,694

FY72 17 38 55 FY88 290 233 523 FY04 2,028 1,839 3,866

FY73 20 40 60 FY89 333 300 634 FY05 2,178 2,034 4,211

FY74 19 44 62 FY90 381 330 711 FY06 2,322 2,038 4,359

FY75 23 48 70 FY91 448 377 825 FY07 2,601 2,201 4,802

FY76 28 57 85 FY92 532 437 969 FY08 3,275 2,852 6,126

FY77 34 63 97 FY93 617 519 1,135 FY09 3,860 3,871 7,731

FY78 41 71 112 FY94 716 624 1,340 FY10 4,654 4,352 9,006

FY79 52 77 130 FY95 809 688 1,497 FY11 6,017 4,750 10,767

FY80 60 86 146 FY96 920 784 1,704 FY12 7,638 5,057 12,695

FY81 58 87 145 FY97 1,056 939 1,995 FY13 9,522 4,797 14,318

FY82 81 107 189 FY98 1,199 1,193 2,392 FY14 10,920 5,071 15,991

FY83 104 123 227 FY99 1,389 1,557 2,946 FY15 12,199 5,182 17,381

FY84 125 132 257 FY00 1,645 1,527 3,172 FY16 13,627 6,051 19,678

FY17

FY85 153 156 309 FY01 1,799 1,885 3,684 (Mar) 14,748 6,124 20,873

FY86 203 187 390 FY02 1,775 1,862 3,636

 Figure 1: Pakistan - Year-Wise Debt Position

2011 2012 2013 2014 2015(P) 2016(P) 2017(P)

(US Dollar in billion)

PUBLIC EXTERNAL DEBT

1. Public Debt (i+ii+iii)** 55.3 53.5 48.1 51.3 50.9 57.7 58.4

i). Medium and Long Term(>1 year) 45.7 45.6 43.5 47.7 45.8 50.0 51.3

Paris Club 15.5 15.0 13.5 13.6 11.7 12.7 11.9

Multilateral 25.8 25.3 24.2 25.8 24.3 26.4 25.9

Other Bilateral 1.9 2.5 2.9 3.4 3.9 4.4 5.2

Euro Bonds/Saindak Bonds 1.6 1.6 1.6 3.6 4.6 4.6 5.6

Military Debt 0.1 0.1 0.1 0.0 - - -

Commercial Loans/Credits - - - 0.2 0.3 0.9 2.2

Local Currency Bonds** 0.0 - 0.0 0.0 0.0 0.0 -

Saudi Fund for Development 0.2 0.2 0.2 0.1 0.1 0.1 0.0

SAFE China Deposits 0.5 1.0 1.0 1.0 1.0 1.0 0.5

NBP/BOC Deposits 0.1 - - - - - -

ii). Short Term (<1 year) 0.6 0.5 0.3 0.7 1.0 1.7 1.1

Commercial Loans/Credits - 0.2 - 0.6 -

Multilateral 0.6 0.5 0.3 0.4 1.0 1.1 1.1

Local Currency Securities** 0.0 0.0 0.0 0.1 0.0 0.0 0.0

iii). IMF 8.9 7.3 4.4 3.0 4.1 6.0 6.0

of which Central Government 2.0 1.9 1.5 0.9 0.1 - -

Monetary Authorities 6.9 5.4 2.9 2.1 4.1 6.0 6.0

PUBLICLY GUARANTEED DEBT

2) Publicly Guaranteed Debt 0.1 0.2 0.6 0.5 1.0 1.3 1.2

i). Medium and Long Term(>1 year) 0.1 0.2 0.6 0.5 1.0 1.3 1.2

Paris Club - - - - - - -

Multilateral 0.0 0.0 0.0 0.0 0.0 0.0 0.0

 Other Bilateral 0.0 0.2 0.6 0.5 1.0 1.3 1.2

Commercial Loans/Credits - - - - - - -

Saindak Bonds - - - - - - -

ii). Short Term (<1 year) - - - - - - -

NON PUBLIC DEBT

3. Private Sector Debt 4.4 3.6 3.1 3.0 3.0 3.3 4.3

4. Public Sector Enterprises (PSEs Debt) 1.3 1.3 1.2 1.7 1.5 1.5 1.6

5. Banks 1.1 1.8 1.6 2.0 2.3 2.7 3.7

Borrowing 0.4 0.9 0.7 1.1 1.3 1.6 2.6

Non-resident Deposits (LCY & FCY) 0.7 1.0 0.8 0.9 1.0 1.1 1.2

6. Debt liabilities to direct investors - 1.6 2.7 3.1 3.4 2.7 2.9 3.0

intercompany debt

Total External Debt (1 through 6) 63.8 63.1 57.8 62.1 61.4 69.5 72.2

FOREIGN EXCHANGE LIABILITIES

7. Foreign Exchange Liabilities 2.6 2.4 3.1 3.3 3.7 3.6 3.5

Total External Debt & Liabilities (1 through 66.4 65.5 60.9 65.4 65.1 73.1 75.7

7)

Memo:

GDP (Rs. in billions) 18,276.4 20,046.5 22,385.7 25,168.8 27,443.0 29,102.6 31,862.2

Exchange Rate (Rs./US$, End of Period) 86.0 94.5 99.7 98.8 101.8 104.8 104.8

GDP (US$ in billions) 213.8 224.6 231.4 244.7 270.9 279.2 304.4

P: Provisional *end-March,2017