Pakistan needs to arrange Rs7.3t in upcoming year

Country likely to roll over maturing debt of Rs5.8t once again.


Shahbaz Rana April 19, 2012

ISLAMABAD: Pakistan will need to raise a huge debt from the market equivalent to 30.3% of the country’s economy or Rs7.3 trillion in next fiscal year to retire maturing debt and bridge the gap between income and expenses, according to an International Monetary Fund report.

The Fiscal Monitor: Balancing Fiscal Policies and Risks report comes at a time when the government is preparing the upcoming fiscal year’s budget. The IMF’s budget deficit projection is much higher than the finance ministry’s estimates.

Pakistan’s gross financing requirements will increase to 30.3% of Gross Domestic Product or Rs7.3 trillion, according to the report. It says the 180 million-nation will have to manage an amount equivalent to 24.3% of its GDP or Rs5.8 trillion for meeting maturing debt obligations. The amount is twice the projected size of next year’s budget, estimated at Rs2.73 trillion by the finance ministry.

According to an official of the finance ministry, most of the maturing debt is domestic and like this year the government will get it rollover or re-financed. Rollover comes with a cost as it increases the debt servicing. For the next fiscal year, the government has projected Rs932 billion to be spent on debt servicing, which is more than a third of the total projected expenses.

IMF projected that Pakistan will need another 6% of GDP or Rs1.5 trillion for budget deficit financing. The IMF’s budget deficit projection is much higher than the finance ministry’s estimates. The finance ministry assessed the budget deficit at 4.2% of GDP or Rs1.1 trillion.

“There will be serious implications for such a huge borrowing or even rolling over  most of the debt, as it will not only hurt businesses expansion due to crowding out effect but also fuel inflation and bust monetary targets”, said Former Director General Debt Office of the Finance Ministry Dr Ashfaque Hasan Khan. He said it is now just matter of time when Pakistan approaches IMF again for a loan.

The IMF estimates show that gross financing requirements for next fiscal year are even higher than this year’s requirements, suggesting deterioration in the country’s debt sustainability. For the current fiscal year, the IMF assessed gross financing requirements at 30% of GDP or Rs6.3 trillion.

The IMF projected that during the current fiscal year, the budget deficit will remain at 6.7% of GDP against the government’s insistence that the deficit will not cross 6.5% of GDP including one-off payments on account of the energy sector’s circular debt.

IMF projected that the country’s gross debt may decrease to 60.1% of GDP or Rs14.4 trillion from this year’s level of 61.7% or almost Rs13 trillion. After retiring some of the debt, net debt has been assessed at 57% of GDP or Rs13.7 trillion.

The Washington-based agency has suggested that next year’s government expenditures (both federal and provincial) may soar to 19.3% of GDP or Rs4.6 trillion. It has assessed total revenues at 13.3% of GDP or Rs3.2 trillion, a mere 0.5% or Rs120 billion increase in revenues over the current financial year’s level.

Published in The Express Tribune, April 19th, 2012.

COMMENTS (7)

Adeel Syed | 11 years ago | Reply

The revenge goes on!

Sahar Ahmed | 11 years ago | Reply

Even the State Bank was stumped as it said in its monetary policy:

" If a revival in private sector credit and growth prospects is to take place, a pertinent question in the current circumstances is: how would the government rollover its maturing short-term debt and raise additional financing while simultaneously retiring its borrowings from the SBP?** With shortfalls in external sources, the most likely avenue will be more borrowings from the SBP. The inflationary implications of this scenario should not be underestimated."

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