By Staff Reporter
ISLAMABAD: The cost of total foreign debt servicing is seen snowballing to $23 billion for the budget 2022-23 as repayment of commercial loans has now assumed a major chunk of an outstanding amount of $6 billion out of total obligations.
Pakistan had been running from country to country and donor to donor to grab hold of dollar inflows to balance its current account and budget deficits with its currency in a free fall, analysts say.
Amid a battered rupee, tighter interest rates, and thinning foreign exchange reserves, Pakistan might have to pay a fortune to finance its gargantuan budget deficit for the FY2023.
The dollar-strapped country also faces repayment of $49.23 billion over the next five years on account of amortisation and markup amount owed by the public sector alone.
Analysts are wary of the risks associated with the exchange rate parity, saying if the rupee depreciates further versus dollar, the debt (to GDP) ratio is bound to go up. They add that if a debt is rolled over or a new debt is borrowed the markups would be sharply higher as the international monetary environment was getting tighter and tighter.
Amid rising external debt obligations, the Debt Office of the Ministry of Finance has practically become dysfunctional as its acting head Umar Zahid resigned last month after securing a new job abroad.
The Ministry of Finance has given acting charge to its Joint Secretary Javed Iqbal but Debt Office was discharging no responsibility to manage foreign debt in a professional manner.
An official document shows the government will have to pay back the $3 billion Saudi Fund for Development’s Time Deposit in the next financial year. However, the government has already requested the Kingdom of Saudi Arabia (KSA) for granting rollover of $3 billion deposits which the KSA agreed to in principle but its exact conditions would have to be worked out.
The foreign exchange reserves held by the State Bank of Pakistan eroded to $9.7 billion in May 2022 from $20 billion in August 2021. The rising foreign debt servicing clearly demonstrates that the country desperately requires major dollar injections for averting insolvency on external debt repayments and obligations.
Official data prepared by the Economic Affairs Division disclosed that the debt servicing on account of public sector loans went up to $18.715 billion for the next budget 2022-23. The private sector loan repayment will be standing at $4.8 billion so the total debt servicing requirements will surge to $23.5 billion for the next budget.
The official data shows that the debt servicing requirement is at $18.715 billion for the public sector during the next financial year 2022-23, out of which the bilateral creditors would be repaid $1.9 billion during the next fiscal year. The multilateral creditors’ repayment on account of principal and mark-up has been estimated to consume $3.04 billion in the next fiscal year.
The international bond repayment will consume $1 billion in the next budget. The major chunk of repayment will be repaid on account of commercial loans and it will consume $6.032 billion in the next fiscal year.
The government is now exploring options to seek rollover on commercial loans. The government’s reliance on getting commercial loans increased manifold because it is considered one of the easiest ways of mustering dollar inflows. As the country has turned into a desperate borrower, the commercial banks might come up with increased demands for jacking up markup rates on requests of rolling over outstanding foreign loans obligations.
The government will have to repay $1.087 billion to the IMF in the coming fiscal year 2022-23. The public sector enterprises are obligated to pay back foreign loans on account of debt servicing of $670 million in the next fiscal year. The interest payments will consume foreign inflows worth $1.986 billion during the next fiscal year.
This totaled the amount of foreign debt servicing climbed to $18.715 billion for 2022-23. The outstanding repayments of private sector loans amounted to $4.8 billion.
The official data further shows debt servicing of foreign loans was projected at $9.984 billion for 2023-24, $7.336 billion for 2024-25, $7.694 billion in 2025-25, and $5.506 billion in 2026-27. The total outstanding foreign debt obligation would be $49.235 billion over the next five years. It does not include the foreign debt owed by the private sector.
Replying to a question by Independent Pakistan, The Ministry of Economic Affairs Division spokesperson wrote that as of March 2022, it has been projected that almost $21.9 billion will be repaid in FY2022-23 (including principal and interest). However, almost $12 billion is scheduled to be rolled over/refinanced by the Finance Division, which will bring the effective debt repayments to $9.9 billion in FY2022-23.
The Finance Division Joint Secretary, who is responsible for administering the Debt Office was sent out questions regarding the possibility of rollover of commercial loans, but he preferred not to reply back.
Copyright © 2021 Independent Pakistan | All rights reserved
