Dr Salman Shah said that if commercial loans borrowed from foreign banks at higher rates of interest with a short amortization period were used for productive purposes with a return of double digits, e.g., on infrastructure, dams or other useful installations, there would have been no issue; but these loans are being taken for balance of payment support.
He further said that Federal Board of Revenue (FBR) has failed to meet revenue collection targets while on the other hand exports have nose-dived. Debt servicing is going to be very high, said Salman Shah, adding that now international donors such as the World Bank have tightened their screws and giving only projects loans.
He said that bonds were floated during Musharraf's tenure, but those loans were taken to create space for the government and for debt repayment. Secondly, our borrowing rate was less than for other B (+) rating countries contrary to what has happened during the past four years and a quarter where the rate is higher than a debt-ridden Greece and other countries that have almost defaulted.
He said that debt to GDP ratio will rise, but warned that "we should not panic". The government would have to increase debt by $2-3 billion but at the same time it must jump start textile sector, which is a very competitive sector, to generate exports.
Noted economist Dr Shahid Hassan Siddiqui said the increase in external debt during the incumbent government is a matter of concern and added that foreign exchange reserves with the State Bank of Pakistan (SBP) decreased by $4.6 billion during the last one year (since October 2016).
Siddiqui said that the government's capacity to repay foreign loans is weak and lamented that these loans are not being used for productivity, or growth or increasing exports but to bridge current account and trade deficits. He expressed extreme reservations at the pace of increase of loans from the foreign commercial banking sector.
Copyright Business Recorder, 2017