Pakistan incurs $24.5 million in charges for unutilized borrowings

Pakistan has paid a whopping $24.5 million in commitment charges to multilateral institutions due to its inability to utilize sanctioned loans for various projects between 2021 and 2024.

This fee is essentially a penalty for not using allocated funds, which prevents lenders from charging interest.

The breakdown of these charges is alarming, with $2.78 million paid to the Asian Development Bank, $4.15 million to the Asian Infrastructure Investment Bank, $14 million to the International Bank for Reconstruction and Development, and smaller amounts to other institutions.

Pakistan's failure to utilize these loans is a symptom of deeper financial management issues. Despite receiving billions of dollars in loans from multilateral organizations and countries, most funds remain unused or undisbursed due to the government's inability to plan and execute projects efficiently.

In fact, Pakistan has been unable to tap into $3.17 billion in loans offered at favorable interest rates between FY21 and August 2024, yet continues to seek loans at higher interest rates.

The Jamshoro Power Project is a prime example of this issue, with $300 million remaining undisbursed after nearly 10 years. Similarly, Pakistan paid $5,017 in commitment charges to the Asian Development Bank for the flood emergency loan project signed in September 2015.

This lack of utilization is unfortunate, given that government departments regularly review project status with lending organizations every six months.

According to the Economic Affairs Division, multilateral and bilateral institutions have committed $4,872.96 million in loans to Pakistan during the current fiscal year, with $1,237.49 million secured in the first quarter.

This highlights the need for improved financial management to ensure effective use of these funds and avoid unnecessary commitment charges.