Pakistan to raise $4 billion Eurobonds in next four years
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.