ISLAMABAD: Amid a weakening currency that has increased the cost of debt servicing, Pakistan’s external debt and liabilities have mounted to $85 billion by September-end this year - a year-on-year increase of 12.3%, reported the State Bank of Pakistan (SBP) on Friday.
In September 2016, the country’s total external debt and liabilities were $75.8 billion that increased by another $9.3 billion, showed the central bank data. The figures are exclusive of $2.5 billion Pakistan obtained last month by floating two sovereign bonds.
The SBP’s external debt bulletin release coincides with the depreciation of the Pakistani rupee against the US dollar. The local currency shed its value by about 4.8%, standing at Rs110.54 to the dollar on Friday.
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The external debt and liabilities figures have been released till the period of September 2017 when the value of rupee to a dollar was Rs105.40. Due to the depreciation, Pakistan will require an additional Rs436 billion to service the same amount of debt.
At Rs105.40 to a dollar, external debt and liabilities were equal to Rs8.964 trillion that, due to the depreciation, have increased to Rs9.4 trillion.
Although a weaker rupee had long been predicted due to a weakening position of the external sector, independent economists had warned the government about the implications of exchange rate adjustments. They had said that Pakistan was sitting on explosive mines, as the day it would let the rupee touch its actual value against the US dollar, the country’s external debt would grow.
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Former finance secretary Dr Waqar Masood had called on the government to adjust the fiscal deficit target after taking into account the implications of the increase in external debt servicing cost due to rupee depreciation.
The rupee is expected to further shed value in the coming months, as the external sector fundamentals remain weak. The SBP governor said this week that after the recent adjustments the rupee-dollar parity was now closer to the equilibrium.
IMF’s Mission Chief to Pakistan Harald Finger on Thursday said that Pakistan’s external sector and its international reserves would continue to remain under pressure in the coming months.
Out of $85 billion, public external debt including debt and liabilities of the public sector enterprises stood at $70.3 billion by September this year. These were $5 billion higher than a year ago.
The share of the public external debt was $67 billion - higher by $4.6 billion or 7.4% in one year. The public sector enterprises debt increased to $3 billion - also higher by 7.7%.
The debt signed by banks grew phenomenally by 68% to roughly $5 billion in just one year. Out of this, the short-term debt contracted by the banks increased from $1.9 billion a year ago to $3.8 billion by September this year.
The country spent $2.1 billion on repayment of external debt and interest on it during the first quarter (July-September) of this fiscal year, according to the SBP. The figure suggests that like the previous fiscal year, this year again, the overall cost of external debt servicing will remain high.
The cost of public external debt servicing stood at $1.64 billion. The principal loans repayment by the public sector stood at $1.34 billion in just three months. The cost of interest payments increased to $300 million in the first quarter.
The private sector debt servicing cost amounted to $304 million including interest payments.
Published in The Express Tribune, December 16th, 2017.
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