Govt seeks to extend debt programme

The government has decided to seek the cabinet’s nod for an unlimited extension in its programme to raise debt from global capital markets, as the International Monetary Fund (IMF) has assessed Pakistan’s gross external financing needs at a record $35 billion in the next fiscal year.

The Global Medium-Term Note Programme that the government launched in March last year to tap world markets for meeting its soaring external financing needs is going to expire this month, sources in the Ministry of Finance told The Express Tribune.

The programme had been launched to cut the time, being consumed in going to the world markets and arranging loans, from around four months to two weeks. Borrowing programmes are now an essential tool to build reserves, the sources added.

An international capital market transaction requires hiring of financial advisers, local and international legal counsel, paying and listing agents, which often take time. The Ministry of Finance is now conducting multiple transactions with the same set of external sector experts.

Sources said that it had been decided by the finance ministry that it needed flexibility in determining the timeframe of the programme and the amount of funds needed to arrange instead of first seeking the approval of cabinet for a specific loan amount.

Under the present Global Medium-Term Note Programme, the government raised $3.5 billion worth of debt by floating Eurobonds. It also raised another $1 billion via the Trust Certificate Issuance (TCI) programme through Sukuk at the highest-ever rate of 7.95% by pledging motorway.

The Sukuk programme had been launched last month for one year but now the finance ministry is seeking what the source called a “perpetual extension” to allow the government to dive into the international capital markets in a timely manner for its financing needs.

Finance Minister Shaukat Tarin told an international publication that the government has a plan to raise $1 billion within a month through Eurobond.

However, the government has completely ignored the strengthening of the Debt Policy Office that is working without a permanent head and at less than its strength. A director-level officer is looking after the government’s over Rs41 trillion debt portfolio.

The government has been heavily relying on foreign creditors to meet its budget deficit needs and inflate foreign exchange reserves in addition to repaying the maturing debt.

Yet the reserves are not stabilising that are depleting as fast as the government is taking new loans.

In December the government had taken $3 billion from Saudi Arabia that took its official reserves to $19 billion. But the reserves again fell to $16 billion last month, forcing the government to look for new borrowing avenues.

The State Bank of Pakistan (SBP) reported on Thursday that it received $1.1 billion from the IMF and $1 billion Sukuk loan, which took its reserves again to $17.4 billion by February 4, 2022. However, the increase in reserves is less than the amount of new borrowing due to repayment of maturing loans. 

The IMF’s staff report of the sixth review of the programme revealed that Pakistan would require a record $35 billion gross external financing to bridge the current account deficit and repay its loans in the financial year 2022-23, starting in July.

The IMF has projected a $12 billion current account deficit in the next fiscal year while the public sector related repayments are estimated at $17 billion, according to the report.

The government will be required to repay $3.1 billion short-term debt and another $13.8 billion long-term debt, according to the report. A $1 billion sovereign bond is also maturing in December this year.

However, the IMF has also assumed that Pakistan will be able to secure a $7.1 billion rollover of the public debt by the international creditors.

The $4 billion rollover of China’s debt in addition to a $5.5 billion additional loan request was also on the agenda of Prime Minister Imran Khan during his visit to Beijing.

During an interview, the finance minister did not directly reply to the question whether China has agreed to give the new loan.

The IMF report underlined that as assessed before, elevated risks – notably from delayed adoptions of reforms, high public debt and gross financing needs, and low reserves – could jeopardise its $6 billion programme objectives, and erode repayment capacity and debt sustainability.

The report also stated that in 2017-18, the external public debt was $72.5 billion that would hit $103 billion by the end of the Pakistan Tehreek-e-Insaf’s (PTI) tenure.

Just 10 months ago, the IMF had projected the external public debt at $92.3 billion, which it has now adjusted upwards along with showing a larger current account deficit and the external financing needs.

The current account deficit that the IMF showed at $5.4 billion at the conclusion of the fifth review in March last year for the current fiscal year is now projected at $13 billion for the current fiscal year.