- If Pakistan fails to resume the IMF program by the end of January, a full-blown crisis will knock on its doorstep, according to the report.
- In terms of rupees, the amount of repayment of foreign loans has increased by 399% over the past four years.
- Pakistan’s total overseas repayments stand at $12.3 billion in the current fiscal year.
ISLAMABAD: Pakistan to repay foreign loans worth $8.638 billion in second half (December-June) of FY 2021-22, The news reported Friday, citing official data.
According to the data, in terms of rupees, this amount for the repayment of foreign loans has increased by 399% over the past four years.
It stood at 286.6 billion rupees in 2017-2018 and is now estimated at around 1,427.5 billion rupees. Meanwhile, in dollar terms, Pakistan had to repay foreign loans – both principal and mark-up – to the tune of more than $12.4 billion.
Given the current external sector situation, if Pakistan fails to resume the International Monetary Fund (IMF) program by the end of January or early February, a full-fledged crisis will knock on the doors of the already struggling country l economy by the end of the current fiscal year.
Pakistan’s foreign exchange reserves held by the State Bank of Pakistan (SBP) stood at $17.6 billion as of December 31, 2021, despite inflows worth $3 billion from Saudi Arabia more than $2 billion from IMF, $1 billion via International Eurobond in first half (July-December) due to widening current account deficit (CAD).
According to official data available with The news, the country paid about $3.78 billion in principal and mark-up on foreign loans in the first five months (July-November) of the current fiscal year.
It is pertinent to mention here that if the IMF program does not resume before the end of January or the beginning of February 2022, it will become difficult for Pakistan to avoid the depletion of foreign exchange reserves held by the central bank.
For confirmation, questions were sent to the Economic Affairs Division (EAD) spokesperson, who confirmed that Pakistan’s total overseas repayments amounted to $12.3 billion during the current year, including principal and interest repayments.
“The numbers paint a horrifying picture”
Shedding light on the issue of heightened vulnerabilities in the external sector, former Finance Minister Dr Hafiz said: “The situation has become difficult as the country’s external financing needs have soared to at least USD 30 billion. dollars in the short term”.
He added that the figures paint a “horrifying picture”. Pasha shared the example of Sri Lanka where the country’s foreign exchange reserves stood at almost $1 billion, but its debts exceeded $7-8 billion.
Pasha clarified that Sri Lanka’s foreign minister had now refused to surrender to the IMF and indicated that they would approach China to help them repay their debts and in return they could cede one of their ports in Beijing.
The former minister said the foreign debt obligation had turned into a “monster” as the country was expected to repay more than $8 billion in the second half of the current fiscal year.
He was of the view that debt repayment would increase further in the next fiscal year 2022-23 exactly when the country would enter election fever following the completion of a five-year term by the incumbent regime.
Pasha predicted that the current account deficit could hit $15 billion to $16 billion for the current fiscal year. In such a scenario, he warned that foreign exchange reserves could start to dwindle, so there are fears of the eruption of a real balance of payments crisis on the horizon of the Pakistani economy.
Official data available with The news disclosed that Pakistan has repaid principal and mark-up of $3.7 billion from the foreign loans account in the first five months (July-November) of the current fiscal year, of which $974 million has been repaid. repaid to multilateral donors, $34 million to bilateral creditors, $2.74 billion to commercial banks, international bonds and the IMF.
In the second half of the current fiscal year, Pakistan is expected to repay principal and surcharge of $8.638 billion, of which $1.860 billion would be repaid to multilateral donors, $1.310 billion to bilateral donors and a big party. $5.353 billion to commercial banks, bonds/Sukuk and the IMF.
Repayment of foreign loans under public sector enterprise (PSE) guarantees is expected to be $114 million in the second half of the current fiscal year, so that the total stock of external debt rose to 8, $63 billion.
Further research carried out by this scribe also revealed that repayments of foreign loans in rupees have increased in recent years, reaching 286.6 billion rupees in the financial year 2017-18 when the PML-led government -N ended after the completion of five years.
Currently, the repayment of foreign loans has been estimated at 1,427.5 billion rupees, or 399%. Repayment of foreign loans amounted to Rs 1,228.8 billion in FY 2020-21, Rs 1,095.2 billion in FY20 and Rs 601.7 billion in in FY19, Rs 286 billion in FY18 and Rs 443.6 billion in FY17.
Repayment of foreign loan obligations stood at 215.9 billion rupees in the 2012-2013 financial year when the PPP-led government ended its five-year term. The repayment of foreign loans amounted to 132.4 billion rupees in the financial year 2009-2010.
In a comparison of the last 12 years from the financial year 2009-10 to 2021-22, the repayment of foreign loans increased from 132.4 billion rupees in 2009-10 to 1,427.5 billion rupees in 2021- 22. It rose at supersonic speed, increasing the vulnerabilities of the outer front manifold.
“The Pakistani authorities must remain vigilant”
Contacted, the former Director General of the Economic Reform Unit (ERU) of the Ministry of Finance, Dr Khaqan Najeeb, said that the Pakistani authorities must remain vigilant about the country’s external financing needs.
These needs can be broadly understood as the country’s short, medium, and long-term debt falling due during a fiscal year, plus the current account deficit.
Pakistan’s external financing need is expected to exceed $27 billion for FY22. This is after assuming China’s $4 billion security deposit would be renewed, he added.
The authorities should ensure that the sources of external financing envisaged are more than sufficient to meet these high external financing needs in FY22.
Dr. Khaqan highlighted some concerns based on analyzes of data for the first half of FY22. Debt repayment made on government external borrowings in the first six months is only $3.7 billion of dollars.
Annual liabilities are estimated at $12.4 billion. Therefore, the much higher repayment of $8.7 billion in the second half of FY22 may put pressure on the country’s balance of payments.
He said that given the external needs, Pakistan’s ability to complete the IMF’s sixth review is therefore crucial to securing the billion dollars and gaining access to other creditors.
IMF approval can ensure continued access to concessional multilateral financing, money from private creditors, and the country’s ability to issue bonds in international markets.
In addition, it is also essential to secure a budgeted amount of foreign direct investment. We must not forget that all this money is necessary to meet the needs of 27 billion dollars.
While commenting on the current account deficit explained, he said it had become larger than initially expected. While the authorities had initial estimates of 3% of GDP, the current account deficit is now expected to be close to 5% of GDP in FY22.
This will be the largest deficit after FY18. The current account deficit trend remained high on a monthly basis averaging over $1.4 billion for the first five months of FY22.
It is hoped that the heavy adjustment of the rupee as well as other containment measures taken by the authorities can reduce the growing deficit in the coming months.
He highlighted three other areas of concern for the balance of payments. In recent months, remittances to Pakistan have started to decline as the global lockdown is reduced.
The price of Brent (oil) rebounded above $84 a barrel, with some analysts pointing to an uptrend. Growing demand for food and related items continues to push up the import bill, such as the recent urea import of 50,000 tonnes.
The shortage of urea in the country could harm Rabi crops. All of these trends could put pressure on the country’s balance of payments and require careful monitoring by the government and taking timely corrective measures if necessary, he concluded.