Debt ser­vic­ing

The Pak Banker - - FRONT PAGE -

Ac­cord­ing to a re­port, the gov­ern­ment of Pak­istan has made for­eign debt ser­vic­ing pro­jec­tions of $31.3 bil­lion un­til 2022-23 to all cred­i­tors start­ing Novem­ber 2017 in­clud­ing $4.2bn payable to for­eign cred­i­tors dur­ing the cur­rent fis­cal year. The cur­rent year would also see the be­gin­ning of debt ser­vic­ing of the China-Pak­istan Eco­nomic Cor­ri­dor (CPEC) loans with less than $80m re­pay­ments. The debt ser­vic­ing cost is es­ti­mated to in­crease to $6.42bn dur­ing the next fis­cal year. The debt ser­vic­ing cost is es­ti­mated to in­crease to $6.42bn dur­ing the 2018-19 fis­cal year, in­clud­ing $1.76bn to mul­ti­lat­er­als, $1.76bn to com­mer­cial banks and up to $1.34bn to in­ter­na­tional cap­i­tal mar­kets against bonds. Re­pay­ments to Paris Club and non-Paris Club cred­i­tors for the next year are es­ti­mated at $900 mil­lion and $600m, re­spec­tively.

For the 2019-20 fis­cal year, the gov­ern­ment has pro­jected for­eign debt ser­vic­ing cost at about $7bn, in­clud­ing $2.23bn to com­mer­cial banks, $1.9bn to mul­ti­lat­er­als, $1.24bn to bond in­vestors and $1.6bn to Paris and non-Paris Club mem­bers. Sim­i­larly, the gov­ern­ment es­ti­mates the debt ser­vic­ing cost to come down sig­nif­i­cantly to $4.4bn in 2020-21 led by about $2bn to mul­ti­lat­er­als, fol­lowed by about $1.6bn to bi­lat­eral cred­i­tors (Paris and non-Paris Club) and bond ser­vic­ing de­clin­ing to just $204m. The debt re­pay­ment would again in­crease to $5.2bn in 2021-22, in­clud­ing more than $2bn to mul­ti­lat­eral lenders, $1.9bn to bi­lat­er­als and $1.2bn as bond ser­vic­ing.

The 2022-23 fis­cal year is ex­pected to see a de­cline in debt ser­vic­ing to $4.2bn in­clud­ing $2bn to mul­ti­lat­er­als, $1.9bn to bi­lat­er­als and fewer ($320m) re­pay­ments to com­mer­cial banks and bond in­vestors put to­gether. The re­pay­ments due to the IMF are es­ti­mated at about $740m in 2019, $1.06bn in 2020, $1.19bn in 2021 and $1.08bn in 2022. Gov­ern­ment pro­jec­tions also in­clude CPEC-re­lated re­pay­ments on ac­count of loans with­out tak­ing into ac­count re­pay­ments on ac­count of re­turn on in­vest­ments. The gov­ern­ment told the IMF dur­ing De­cem­ber con­sul­ta­tions that $23bn worth of CPEC projects were un­der im­ple­men­ta­tion, in­clud­ing $17bn in the en­ergy sec­tor by the pri­vate sec­tor.

About $6.035bn worth of projects were in the road sec­tor and funded through loans at a weighted av­er­age rate of in­ter­est at about 2.4pc. These in­clude $1.315bn phase-II of the Karako­ram High­way, $1.626bn La­hore Metro Or­ange Train and $2.9bn Sukkur-Mul­tan Mo­tor­way. This, how­ever, does not in­clude key projects on which agree­ments have yet to be signed, such as $8.2bn rail­way line from Karachi to Torkham on the Afghan bor­der. The flow of funds from not only the mul­ti­lat­eral lenders like the World Bank and the Asian Devel­op­ment Bank (ADB), but also from some ma­jor bi­lat­eral lenders would de­pend on the clean chit of eco­nomic health from the IMF.

While the IMF has been ap­pre­cia­tive of gov­ern­ment poli­cies un­der its three-year pro­gramme, neg­a­tive mark­ing in­cludes some loos­en­ing of the fis­cal side, in­abil­ity to carry for­ward struc­tural re­forms to ad­dress en­ergy sec­tor losses, poor health of pub­lic sec­tor en­ti­ties, and lim­ited suc­cess on tax base. The flow of the World Bank as­sis­tance is nor­mally linked to Pak­istan's abil­ity to main­tain of­fi­cial for­eign ex­change re­serves suf­fi­cient to fi­nance at least two months of the im­port bill, but it can some­times be in­flu­enced by po­lit­i­cal di­men­sions. The ADB has been a dif­fer­ent case in the past that helped Pak­istan in dif­fi­cult sit­u­a­tions de­spite US op­po­si­tion and could find some sup­port from newly es­tab­lished China-spon­sored Asian In­fra­struc­ture In­vest­ment Bank.

The tim­ing is of crit­i­cal im­por­tance and a re­minder of a 2007-08 sit­u­a­tion when the Mushar­raf-led ad­min­is­tra­tion was pushed to the wall for po­lit­i­cal rea­sons and the sub­se­quent PPP-led coali­tion gov­ern­ment de­cided at the last mo­ment to put on hold launch­ing of a few trans­ac­tions in the in­ter­na­tional cap­i­tal mar­ket, fol­lowed by an IMF pro­gramme on tough con­di­tions that could not sur­vive the test of time be­yond few ini­tial tranches.

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