External debt servicing costs $7b in six months

The country paid over $7 billion in external debt servicing for the first half of fiscal year 2020-21 (1HFY21) which looks significantly higher when compared with the foreign exchange reserves of the State Bank of Pakistan (SBP).

The country paid $3.55bn in external debt servicing for the second quarter of the current fiscal (2QFY21) - slightly higher than first quarter (1QFY21) payment of $3.51bn, the central bank reported.

The cumulative two quarters (half year) payment as debt servicing reached $7.06bn, indicating that the total debt servicing could cross the $14bn figure at the end of FY21.

The country's external account looks stable with the current account surplus of over $1bn and foreign exchange reserves hovering around $13bn since Nov 2020. The central bank's reserves are used for servicing external debts.

However, the total external debts and liabilities have increased by 2.6pc to $115.76bn at the end of December 2020 compared to $112.79bn on June 30, 2020.

Pakistan paid $2.93bn as principal amount and $617 million as interest on external debts in 2QFY21, similar to the $2.93bn paid in 1QFY21.

Further details showed that the country paid $2.979bn as public debt servicing in 2QFY21. The public debt servicing included government debt servicing ($1.58bn), IMF ($34m) and foreign exchange liabilities ($1.06bn).

However, the external debt servicing of private sector debt has increased significantly. In 2QFY21, the country paid $52m - an increase of 87pc - as compared to $28m in 1QFY21.

The share of private sector external debt has been rising as it reached $11.26bn by end of Dec 2020 while it was $11.12bn in 1QFY21. In FY20, private sector external debt servicing was $2.00bn. Current foreign exchange reserves of the SBP at $12.95bn are lower than the debt servicing of FY20 which was $14.58bn. The half-yearly external debt servicing shows the total for the fiscal year FY21 would be again more than $14bn.

The situation has yet not changed this year despite record remittances being sent by the overseas Pakistanis. The remittances during the first seven months of the current fiscal have reached $16.5bn; 24pc higher than the previous year's inflow.