Ex­ter­nal debt

The Pak Banker - - FRONT PAGE -

As per fig­ures released by the State Bank, Pak­istan's ex­ter­nal debt and li­a­bil­i­ties have soared to a record $91.8 bil­lion, show­ing an in­crease of over 50% or nearly $31 bil­lion in the past four years and nine months. The ex­ter­nal debt and li­a­bil­i­ties of $91.8 bil­lion as of March-end sug­gest that the fig­ure may touch $100 bil­lion very soon as the coun­try faces grave challenges in meet­ing its grow­ing ex­ter­nal fi­nanc­ing re­quire­ments. The over­all public debt in­clud­ing do­mes­tic, ex­ter­nal and li­a­bil­i­ties in ru­pee term have touched Rs28,297 bil­lion till March 31, 2018 in­di­cat­ing that each in­di­vid­ual liv­ing in the coun­try owed Rs136,700, keep­ing in view the to­tal pop­u­la­tion of 207 mil­lion ac­cord­ing to the lat­est cen­sus re­sults.

The $91.8-bil­lion ex­ter­nal debt and li­a­bil­i­ties are higher by $30.9 bil­lion or 50.6% com­pared to the level recorded in June 2013 when the PML-N gov­ern­ment came to power. Of the to­tal ex­ter­nal debt and li­a­bil­i­ties, the gov­ern­ment's public debt obli­ga­tions in­clud­ing for­eign ex­change li­a­bil­i­ties were $76.1 bil­lion at the end of March. In the past four years and nine months, the public debt-re­lated obli­ga­tions in­creased 42.5% or $22.7 bil­lion, showed the cen­tral bank data. In June 2013, the ex­ter­nal public debt in­clud­ing for­eign ex­change li­a­bil­i­ties stood at only $53.4 bil­lion. The pace of for­eign loan ac­cu­mu­la­tion grew in 2017 as Pak­istan ac­quired $6.9 bil­lion dur­ing the year in a bid to fi­nance swelling im­ports and re­pay ex­ter­nal debt fol­low­ing fail­ure to bridge the fis­cal deficit due to low ex­ports and in­signif­i­cant in­crease in worker re­mit­tances. The $6.9-bil­lion bor­row­ing is the sin­gle largest an­nual ac­cu­mu­la­tion of ex­ter­nal debt in the past four years, ac­cord­ing to the State Bank of Pak­istan's sec­ond quar­ter re­port on the state of econ­omy. With this ad­di­tion, the to­tal public debt reached $66.9 bil­lion by the end of 2017.

A ma­jor hike came in the ex­ter­nal debt con­tracted by is­su­ing sov­er­eign bonds and tak­ing ex­pen­sive com­mer­cial loans. Since June 2013, the PML-N gov­ern­ment has ac­quired a whop­ping $42.6 bil­lion in ex­ter­nal loans, which is tak­ing its toll on the na­tional ex­che­quer due to the mount­ing debt ser­vic­ing cost. Start­ing from July 2013, with ev­ery pass­ing year, the quan­tum of ex­ter­nal debt has kept grow­ing due to the gov­ern­ment's in­abil­ity to im­ple­ment poli­cies that could have en­sured suf­fi­cient non-debt cre­at­ing in­flows. Pak­istan's gross of­fi­cial for­eign cur­rency re­serves as of May 4 stood at only $11.16 bil­lion. The gov­ern­ment took no time in con­sum­ing the en­tire $1 bil­lion Chi­nese loan re­ceived on the sec­ond last day of the pre­vi­ous month. The gross of­fi­cial for­eign cur­rency re­serves of $11.16 bil­lion in­clude loans of $6.13 bil­lion the cen­tral bank has ac­quired from do­mes­tic banks to shore up its re­serves. By ex­clud­ing th­ese short-term bor­row­ings, the re­serves are al­most at the level recorded in June 2013.

Ow­ing to the huge do­mes­tic and for­eign bor­row­ings, debt ser­vic­ing is now the sin­gle largest ex­pen­di­ture in the fed­eral bud­get, es­ti­mated at Rs1.62 tril­lion or 30.7% for the next fis­cal year 2018-19. Ac­cord­ing to SBP, a sum of $5 bil­lion was spent on ser­vic­ing the out­stand­ing stock of ex­ter­nal debt in just nine months of the on­go­ing fis­cal year, ac­cord­ing to the cen­tral bank. The coun­try paid $3.52 bil­lion in prin­ci­pal loans and $1.44 bil­lion in in­ter­est on out­stand­ing loans. In its Debt Pol­icy State­ment 2017-18, which the fi­nance min­istry pre­sented to the lower house of par­lia­ment early this year, the gov­ern­ment ad­mit­ted that dur­ing the last fis­cal year the coun­try's ex­ter­nal debt in­creased at a faster pace than its for­eign ex­change earn­ings. Pak­istan's ex­ter­nal debt as a per­cent­age of for­eign ex­change re­serves in­creased to a three-year high. Sim­i­larly, the cost of ex­ter­nal debt ser­vic­ing as a per­cent­age of for­eign ex­change earn­ings in­creased sig­nif­i­cantly.

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