Pak­istan to raise $4 bil­lion Eu­robonds in next four years

The Pak Banker - - FRONT PAGE - Muham­mad Yasir

Pak­istani govern­ment has planned to raise an­nual av­er­age ex­ter­nal debt of US$6.5 bil­lion in­clud­ing a to­tal of US$4 bil­lion through Eu­robonds in the next four years among oth­ers, ac­cord­ing to Medium Term Debt Man­age­ment Strat­egy (2015/16 - 2018/19) pub­lished by Govern­ment's Debt Pol­icy Co­or­di­na­tion Of­fice (DPCO). Ac­cord­ing to the doc­u­ment fore­cast, the govern­ment's debt level pro­jected to in­crease for June 30, 2016 up to Rs12.7 tril­lion at do­mes­tic level which is lower than of Jan­uary 31 as 2016 level of Rs13.1 tril­lion show­ing that ac­tual yearend fig­ures are likely to be higher than pro­jected.

The ex­ter­nal debt is pro­jected to in­crease to US$52 bil­lion, up by around US$1.1 bil­lion from dif­fer­ent for­eign banks or fi­nanc­ing agen­cies.

This year, the largest amount of debt ma­tu­rity will reach Rs6 year in 2016 and over Rs2 tril­lion in 2017. Over Rs5.6 tril­lion in 2016 is ma­tu­rity of do­mes­tic debt. This is be­cause bulk of do­mes­tic debt is short/medium term and is per­pet­ual in na­ture, where govern­ment con­stantly re­fi­nances through new is­sues. Fur­ther, this ma­tu­rity is ex­pected to be re­fi­nanced at a much lower rate as govern­ment will ben­e­fit from a cu­mu­la­tive 300 ba­sis points re­duc­tion in in­ter­est rates dur­ing mid-Novem­ber 2014 to May 2015.

A fore­most yard­stick for mea­sur­ing debt sus­tain­abil­ity is debt ser­vic­ing as per­cent­age of to­tal rev­enues. For FY15, ser­vic­ing of pub­lic debt was Rs1.6 tril­lion, which was 40% of to­tal rev­enues of Rs3.9 tril­lion. This is in line with trend of pre­vi­ous years where this has av­er­aged around the same. Fur­ther, the doc­u­ment states that ideally this ra­tio should be below 30% to ap­por­tion more re­sources and fi­nances to­wards de­vel­op­ment.

Pak­istan re­pay­ment of ex­ter­nal debt is ex­pected to re­main around US$4-5 bil­lion in the medium term from 2016 to 2019 but it may lower in the long term as pay­ment to dif­fer­ent lo­cal and in­ter­na­tional banks and agency will con­tinue till 2040,

An­a­lysts be­lieved the es­ti­mated is con­ser­va­tive be­cause strat­egy de­tails have been in­cluded pub­lic debt alone with­out tak­ing inc­og­nizance of ex­ter­nal debt ser­vic­ing of Pub­lic Sec­tor En­ter­prises (PSEs) and Pri­vate Sec­tor, which is lower than the lat­est In­ter­na­tional Mon­e­tary Fund (IMF) re­view's bal­ance of pay­ments fore­casts that lists av­er­age an­nual debt ser­vic­ing of around US$7 bil­lion in the medium term.

Pak­istan's to­tal debt in­clud­ing do­mes­tic and ex­ter­nal stood at Rs17.4 tril­lion as of June 30, 2015, which is 63.5% of GDP. This com­pares fa­vor­ably to June 30, 2014 when to­tal debt to GDP was 63.8%. Fur­ther, to­tal debt in­creased by Rs1.4tn dur­ing FY15 as com­pared to in­crease of Rs1.7tn dur­ing FY14. In FY16, to­tal debt is ex­pected to rise to Rs18.1tn, which is 59.2% of GDP. Im­prove­ment in Pak­istan to­tal debt sta­tis­tics come on the back of both im­prove­ment in fis­cal deficit dur­ing the last few years and lower cur­rent ac­count deficit.

The ob­jec­tive of the Medium Term Debt Man­age­ment Strat­egy is to list sus­tain­abil­ity of Pak­istan's to­tal pub­lic debt by fo­cus­ing on short to medium term ma­tu­rity pro­file and ways of re­fi­nanc­ing th­ese ma­tu­ri­ties.

Ac­cord­ing to the doc­u­ment, the ma­tu­rity of ex­ter­nal debt is not as large as be­ing spec­u­lated and Pak­istan's to­tal debt and debt ser­vic­ing are on a de­clin­ing trend, which is con­trary to gen­eral per­cep­tions.

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