More than 60% of the money Pakistan borrowed last year was meant to keep the country’s foreign exchange reserves high enough to avoid bankruptcy
Pakistan borrowed $10.7 billion in the 2017-18 fiscal year and more than a fifth of these loans came from Chinese banks, making them the largest lender to Pakistan.
Chinese commercial banks lent Pakistan $2.2 billion in the fiscal year that ended in June 2018. These include the Bank of China, China Development Bank and Industrial and Commercial Bank of China.
In the past fiscal year, Pakistan raised $2.5 billion through bonds and $4.14 billion from foreign commercial banks. Multilateral donors, like the Asian Development Bank, Islamic Development Bank and International Bank for Reconstruction and Development, lent Islamabad $3.8 billion. The country also borrowed $254 million from bilateral donors or friendly countries like China, France, Japan and Kuwait.
More than 60% of the money Pakistan borrowed last year was meant to keep the country’s foreign exchange reserves high enough that it could avoid bankruptcy or default on previous loans and pay for essential imports.
Pakistan is facing a trade gap or deficit of $18 billion a year because its imports are much higher than its exports. This is not sustainable because its current dollar reserves ($10.2 billion) are not enough to pay for essential imports that are necessary to support economic activity.
On the local front, the government’s revenue, that mainly comes from taxes, is much lower than its expenses, which results in a budget deficit. In the 2017-18 fiscal year, its expenses exceeded its revenue by Rs2.12 trillion, leaving the government with no money of its own to spend on development.
To finance this trade gap and budget deficit, Pakistan has been relying on domestic and foreign loans. The country’s total national debt stands at Rs28 trillion or $234 billion, of which foreign loans make up $90 billion. This is higher than the permissible limit, which should not exceed 60% of the GDP.