Govt eyes $6.5b bor­row­ing to set­tle old debt

The Pak Banker - - FRONT PAGE -

KARACHI: The govern­ment plans to raise $6.5 bil­lion in the medium term (FY16-19) to pay off its ex­ter­nal debt ma­tu­ri­ties. This in­cludes rais­ing a to­tal of $4bn through Eu­robonds in the next four years be­sides us­ing other debt tools. Re­cently the Debt Pol­icy Co­or­di­na­tion Of­fice (DPCO) pub­lished Medi­umTerm Debt Man­age­ment Strat­egy (2015-16 to 2018-19) while Topline Re­search out­lined the main fea­tures of the strat­egy. The ob­jec­tive of the doc­u­ment 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.

"Af­ter analysing the doc­u­ment, we have reached fol­low­ing salient con­clu­sions: 1) Ma­tu­rity of ex­ter­nal debt is not as large as be­ing spec­u­lated; 2) Pak­istan's to­tal debt and debt ser­vic­ing are on a de­clin­ing trend, which is con­trary to gen­eral per­cep­tion," said the re­port of Topline.

Re­pay­ment of ex­ter­nal debt is ex­pected to re­main around $4-5bn in the medium term (FY16-19) and lower still in the long term (go­ing out to 2040), as per the doc­u­ment.

Even though this only in­cludes pub­lic debt and does not in­clude ex­ter­nal debt ser­vic­ing of Pub­lic-Sec­tor En­ter­prises (PSEs) and the pri­vate sec­tor, it is lower than the lat­est IMF bal­ance of pay­ments fore­cast which lists an av­er­age an­nual debt ser­vic­ing of around $7bn in the medium term.

The doc­u­ment fore­cast govern­ment's debt level pro­jected for June 30, 2016. How­ever, do­mes­tic debt level pro­jected for June 30, 2016 of Rs12.7 tril­lion is lower than Jan­uary 31, 2016 level of Rs13.1tr, show­ing that ac­tual year-end fig­ures are likely to be higher than pro­jected. Ex­ter­nal debt is pro­jected to in­crease to $52bn, up by around $1.1bn. A fore­most yard­stick for mea­sur­ing debt sus­tain­abil­ity is debt ser­vic­ing as per­cent­age of to­tal rev­enues. For FY15, ser­vic­ing of pub­lic debt was Rs1.6tr, which was 40 per cent of to­tal rev­enues of Rs3.9tr. This is in line with the trend of pre­vi­ous years where this has av­er­aged around the same. Fur­ther­more, the doc­u­ment states that ideally this ra­tio should be below 30pc.

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