In a sign of Pakistan’s growing reliance on Beijing, the Chinese banks continue to be our largest lender, accounting for a third of $1.5 billion we borrowed in the first four months of fiscal year ending June 30.
The contribution of Chinese money as a portion of our overall borrowing has increased this year, according to the Economic Affairs Division. In the previous fiscal year, Pakistan had borrowed $10.7 billion worth of foreign loans and more than a fifth of this came from Chinese banks. Their share in the July-October period this year has increased to 33%.
Pakistan is facing a double loss since its imports are more than twice its exports, which result in a trading loss. This is not sustainable because its current dollar reserves ($10.2 billion) are not enough to pay for the essential imports that are necessary to support economic activity.
More than 60% of the money Pakistan borrowed from foreign institutions and governments last year was meant to keep the country’s foreign exchange reserves high enough so it could avoid bankruptcy or default on previous loans and pay for essential imports.
On the local front, the government’s revenues are much lower than its expenses, leading to a budget deficit of Rs2.12 trillion (for fiscal year 2017-2018). This leaves the government with no money of its own to spend on development, such as building schools, hospitals, roads, and dams.
To finance its budget deficit, Pakistan has been relying on domestic and foreign loans. More than half the amount we borrowed from July through October was for project financing. The remainder of this loan was for budgetary support and short-term credit to meet other financing needs.
At the end of June 2018, the country’s total national debt was Rs28 trillion or $234 billion, of which foreign loan was $90 billion. This is higher than the permissible limit, which should not exceed 60% of the GDP.