Pakistan’s external debt rises $26 billion in three years

Pakistan witnessed an increase of $26 billion during the first three years of the present PTI government.

Economic Affairs Division additional secretary Zulfikar Haider stated this in a meeting of the Standing Committee of the National Assembly for Economic Affairs Division held under the chairmanship of Mir Khan Muhammad Jamali.

The additional secretary briefed the meeting on the impact of the rupee depreciation on domestic and external liabilities.

In June 2018, the total external debt of the country was $96 billion, which now reached the level of $122.44 billion after witnessing an increase of $26 billion, he said, adding that the total loan of the Paris Club stood at $3.78 billion in which $2.97 billion is the actual amount, whereas $814 million is to be paid as a markup.

Haider said that because of the Covid-19 pandemic, the Paris Club has not only deferred the loan payment but also given substantial relief on the markup of loans.

Member of the committee Qaiser Sheikh said that when the relief on markup and installments was given to the country the rate of dollar was Rs50 or less, which means that the government now has to pay more to the Paris Club.

During the PML-N tenure, the external debt rose $34 billion to $61 billion when it came to power for the third time in 2013. This debt and liabilities saw an expansion of $15 billion during the Pakistan’s Peoples’ Party (PPP) rule. The debt was recorded at $46 billion by the end of June 2008.

Foreign debt is dominated by long-term loans from the international financial institutions, multilateral agencies, and the Paris Club. The share of sovereign bonds in the debt is relatively low. The expansion in the EDL originated from both the public and the private sectors.

A huge increase in the external debt was sourced through the disbursements from multilateral donors.

According to the State Bank of Pakistan data, the long-term foreign debt stood at $78.173 billion at the end of June, up from $68.773 billion at the end of the previous year.

The debt accumulated through multilateral sources rose to $33.836 billion from $30.898 billion at the end of June 2020.

The loans from bilateral sources stood at $14.821 billion, compared with $13.428 billion in the previous year. The debt accumulated through the IMF was $7.384 billion from $7.680 billion, while the loan disbursements from the commercial, multilateral and bilateral sources are rising to repay maturing foreign commercial loans.

These inflows are also used for the budgetary support and development projects. Pakistan re-entered the international capital market after a gap of more than three years.

The data also showed that the debt taken through Euro Sukuk bonds rose to $7.80 billion from $5.30 billion. Foreign investment in long-term government securities also saw an uptick. The debt through the Naya Pakistan Certificates stood at $767 million.

The servicing of external debt fell 8 per cent to $13.424 billion in FY2021, while the government repaid $11.19 billion of the principal amount and $2.24 billion in interest, the data showed.

It repaid $11.35 billion of the principal amount and $3.23 billion in interest last year.

In the last three years, the government paid a whopping $39.59 billion of the principal amount and interest on foreign loans.

The economic experts are of the view that the country is expected to have gross external financing needs of around $20 billion in FY22. This includes debt servicing, while the current account deficit is expected to be 2 per cent to 3 per cent of GDP.

State Bank of Pakistan governor Reza Baqir believed that sufficient financing is available to meet this need also. Most of the inflows anticipated by the SBP will be in the form of borrowings.

Inflows would include foreign direct investment (FDI), loans from the private creditors, official creditors (non-IMF), the IMF, and additional Special Drawing Rights (SDR) allocation.

The foreign direct investment is expected to be a very small portion of it. Last week, Pakistan received $2.75 billion from the IMF under its new SDR allocation, which boosted the SBP’s foreign exchange reserves to an all-time high of $20 billion.

Related posts