On Monday, the Pakistani government authorized supplementary grants exceeding PKR 402 billion to service external debt in the current fiscal year. The additional allocation was necessitated due to unexpected short-term debt repayments and significant currency devaluation that resulted in a shortfall.
In a session chaired by Finance Minister Ishaq Dar, the Economic Coordination Committee (ECC) of the cabinet approved several decisions with a total fiscal impact of PKR 444 billion on the federal budget. This included PKR 9.5 billion in sovereign guarantees for the Sukkur-Hyderabad motorway construction project.
The ECC also determined the prices for 49 new pharmaceutical products to be launched in Pakistan for the first time. According to an official statement from the Ministry of Finance, the ECC approved a supplementary grant of PKR 402.3 billion for debt servicing of foreign loans and credits.
The National Assembly had previously sanctioned a budget of PKR 4.4 trillion for the repayment of foreign loans, short-term foreign commercial loans, and interest on foreign debt for the current fiscal year. However, the ECC was informed that the designated PKR 142 billion for short-term loan repayments and PKR 511 billion for interest payments on foreign loans were inadequate.
Unexpected external debt repayments led to an increase in short-term foreign loan repayments to PKR 331 billion, surpassing the approved budget of PKR 142 billion. This occurred after some foreign commercial banks declined to extend their loans. The government’s anticipation that European and Gulf-based commercial banks would refinance their loans was unrealized, attributed to lower credit ratings and high default risks.
Likewise, the National Assembly had approved PKR 511 billion for interest payments on foreign loans. However, due to currency devaluation, the Economic Affairs Ministry now estimates the interest cost on foreign loans at PKR 725.4 billion, creating a deficit of PKR 214.3 billion.
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Inaccurate estimations of the PKR 186 to dollar exchange rate for the current fiscal year resulted in insufficient budget allocation for interest payments. For the upcoming fiscal year, the government has approved the PKR 290 to dollar exchange rate parity, which will once again lead to underfunding for external debt servicing.
The ECC also agreed to provide a sovereign guarantee of PKR 9.5 billion for the construction of the Hyderabad-Sukkur motorway. This project, being undertaken as a public-private partnership, will see the bidder investing PKR 307 billion, to be recouped through toll fees.
Other approvals included PKR 12 billion in supplementary grants for relief items procurement for the National Disaster Management Authority, a supplementary grant of PKR 9.2 billion for the Power Division for the execution of the 1320 MW coal-fired power project Jamshoro, and the establishment of Maximum Retail Prices for 49 new drugs, deemed to be considerably lower than regional prices.
The ECC also approved supplementary grants for various departments and projects, including the New Gwadar International Airport, Establishment Division, Ministry of Information, Ministry of Interior, FATA Temporary Displaced Persons Emergency Recovery Project, and the Ministry of Defence, among others.
