Fiscal breather: Islamic Development Bank rolls over $576 million debt

Pakistan will now pay back the amount over the next two years.


Shahbaz Rana January 03, 2012

ISLAMABAD: The Islamic Development Bank has agreed to roll over $576 million of Pakistan’s debt for two years as Islamabad struggles with its budget deficit following the halt of aid inflows from the United States and other international lenders.

The amount was due in December and will now be paid back over the next two years, said sources in the finance ministry. Pakistan had obtained the loan to finance imports. In December, the original $654 million loan had reached maturity, out of which $576 million has been rolled over.

The move will reduce debt servicing during the current fiscal year which ends June 30, 2012 and also help reduce the projected current account deficit, which is the gap between external payments and receipts.

For the financial year 2012, the federal government has estimated that it will receive $3.7 billion in external inflows while the estimated liabilities to be paid back during the year are $2.7 billion. Based on these assumptions, the finance ministry hopes that foreign exchange reserves would not fall below $16.5 billion. The State Bank of Pakistan, however, fears that most of the inflows would not materialise and the reserves could fall as low as $12 billion.

After the May 2011 US raid on Abbottabad, Washington has tactfully been delaying reimbursements for services in the war on terrorism to Islamabad as part of the Coalition Support Fund as well as its aid under the $7.5 billion five-year Kerry-Lugar package.

Meanwhile, the International Monetary Fund has also not given the go-ahead to the World Bank and the Asian Development Bank for extending budgetary support loans to Pakistan after Islamabad failed to reform the power sector and institute other fiscal reforms. Pakistan has already walked away from the IMF’s $11.3 billion bailout package after it failed to meet those same requirements.

Sources said that external inflows during the first five months of fiscal 2012 were not encouraging but the rolling over of debt would help to ease some pressure. From July through November, Pakistan received $800 million in new loans, or slightly over one-fifth of the anticipated annual receipts.

Nonetheless, the amount is 53.2% higher than the $522 million of inflows in the corresponding period of the previous fiscal year, largely because many international lenders initiated a review of their portfolio of aid projects. According to finance ministry officials, the World Bank disbursed $155 million and the Asian Development Bank’s releases stood at $183 million. China also gave $240 million loans.

Pakistan also paid back $612 million in its debt obligations during the first five months of fiscal 2012, leaving it with net inflows of $188 million.

Published in The Express Tribune, January 4th, 2012.

COMMENTS (1)

Khan Bhai | 12 years ago | Reply

Meanwhile Pakistan's debt has almost doubled in the last 3 years and Mr. Zardari is still giving handouts under Benazir Income Support plan. What idiosyncratic behavior!

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