Ris­ing debt bur­den

The Pak Banker - - FRONT PAGE -

As per the lat­est fig­ures re­leased by the State Bank of Pak­istan, amid de­clin­ing for­eign ex­change re­serves and weak­en­ing ca­pac­ity to re­pay, Pak­istan's ex­ter­nal debt and li­a­bil­i­ties rose sharply to al­most $89 bil­lion at the end of De­cem­ber. It means that the gov­ern­ment took a higher amount of debt than what an in­de­pen­dent econ­o­mist pre­dicted over two years ago. For­mer fi­nance minister Dr Hafiz Pasha had pre­dicted in De­cem­ber 2015 that by June 2019, Pak­istan's ex­ter­nal debt and li­a­bil­i­ties would touch $90 bil­lion. With six months to go, the like­li­hood of ex­ter­nal debt and li­a­bil­i­ties cross­ing $90 bil­lion is ex­tremely high.

A de­tailed anal­y­sis shows that Pak­istan's to­tal ex­ter­nal debt and li­a­bil­i­ties as of De­cem­ber 2017 stood at $88.9 bil­lion, higher by $5.8 bil­lion or 6.9% over six months ago. There was an in­crease of $13.2 bil­lion in the amount of ex­ter­nal debt and li­a­bil­i­ties in just one year. In De­cem­ber 2016, ex­ter­nal debt and li­a­bil­i­ties amounted to $75.7 bil­lion. At the time, Pak­istan's gross of­fi­cial re­serves were $18.6 bil­lion, which have al­ready slid to $12.8 bil­lion. Out of to­tal ex­ter­nal debt, the gov­ern­ment's di­rect obli­ga­tions are equal to $70.5 bil­lion, which ex­clude guar­an­teed and pub­lic sec­tor en­ter­prises' debt. The main in­crease came in the ex­ter­nal debt con­tracted by is­su­ing sov­er­eign bonds and tak­ing ex­pen­sive com­mer­cial loans. In the first half, debt ob­li­gated by is­su­ing Sukuk and Eurobonds in­creased by 52% to $7.3 bil­lion. Sim­i­larly, the debt ob­tained by tak­ing com­mer­cial loans in­creased to $5.3 bil­lion by De­cem­ber 2017 - a net ad­di­tion of $503 mil­lion or 10.4% in six months. On a yearly ba­sis, debt ac­cu­mu­lated through com­mer­cial loans in­creased by 189% or $3.5 bil­lion.

The rise in ex­ter­nal debt comes at a time when of­fi­cial for­eign cur­rency re­serves are go­ing down as well. It needs to be added here that the SBP has al­ready lost $3.5 bil­lion worth of re­serves since the start of the fis­cal year. The alarming fig­ures in­di­cate the gov­ern­ment's in­abil­ity to en­sure enough non-debt cre­at­ing inflows to meet ex­ter­nal ac­count re­quire­ments. Due to huge do­mes­tic and for­eign bor­row­ings, debt ser­vic­ing is now the sin­gle largest charge on the fed­eral bud­get. A sum of $3.62 bil­lion was spent on the ser­vic­ing of out­stand­ing stock of ex­ter­nal debt in just six months, ac­cord­ing to the cen­tral bank. The coun­try paid $2.7 bil­lion in prin­ci­pal loans and $988 mil­lion in in­ter­est on out­stand­ing loans.

Un­for­tu­nately, the gov­ern­ment could not get any for­eign loan resched­uled in the first half of the fis­cal year, un­like last year when it was able to roll over $1.2 bil­lion worth of ex­ter­nal loans. Two weeks ago, the gov­ern­ment had ad­mit­ted be­fore the Na­tional As­sem­bly that Pak­istan's ex­ter­nal debt bear­ing ca­pac­ity has de­te­ri­o­rated fur­ther. In its Debt Pol­icy State­ment 2017-18, which the fi­nance min­istry sub­mit­ted to the lower house of par­lia­ment, the gov­ern­ment ad­mit­ted that dur­ing the last fis­cal year the coun­try's ex­ter­nal debt in­creased at a faster pace than its for­eign ex­change earn­ings.

In ad­di­tion, Pak­istan's ex­ter­nal debt as a per­cent­age of for­eign ex­change re­serves also in­creased to the three-year high. The cost of ex­ter­nal debt ser­vic­ing as a per­cent­age of for­eign ex­change earn­ings also in­creased, the high­est level as com­pared to the last year of the PPP gov­ern­ment. Due to the widen­ing cur­rent ac­count deficit, in­de­pen­dent econ­o­mists have lately es­ti­mated the gross ex­ter­nal fi­nanc­ing re­quire­ments in the range of $24 bil­lion to $26 bil­lion for the cur­rent fis­cal year. The gov­ern­ment's own es­ti­mates put the fig­ure at $18 bil­lion. The fi­nanc­ing gap is es­ti­mated at roughly $6 bil­lion for the re­main­ing pe­riod of the cur­rent fis­cal year, which would ei­ther be met through more for­eign loans or draw­ing of­fi­cial for­eign cur­rency re­serves.

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