Pakistan explores debt rescheduling option

Both finance and economic affairs ministries oppose the idea

ISLAMABAD:

The government has explored an option to seek rescheduling of its external debt, as Pakistan faces a mammoth challenge to service over two-third or $66 billion of the total external public and publicly-guaranteed repayments in five years.

The $66 billion external debt repayments are exclusive of interest payments on these loans that are also estimated at $9.4 billion over the same period.

However, both the finance and economic affairs ministries did not find the rescheduling as the best option, as the majority of the external public debt did not qualify for rescheduling until a default was declared, highly placed sources told The Express Tribune.

A meeting took place on Monday in the economic affairs ministry. It was attended by Economic Affairs Minister Sardar Ayaz Sadiq and Minister of State for Finance Dr Aisha Pasha.

It emerged during the meeting that seeking debt rescheduling would be tantamount to declaring default on its debt obligations that was not desirable at this critical time, the source added.

The details showed that the government reviewed the total external public and publicly-guaranteed debt stock of over $97 billion.

It carried the possibility of identifying the debt volume that could be taken up with the international creditors for rescheduling.

An official of the economic affairs ministry said about $66 billion external public and publicly-guaranteed debt was maturing from fiscal year 2022-23 to 2026-27.

However, a bigger chunk of the $97 billion external public and publicly-guaranteed debt -- the $74 billion – could not be considered for rescheduling.

“The finance ministry is opposing any debt rescheduling and our collaboration with the economic affairs ministry is for the sake of finding ways to enhance disbursements of already signed loans and searching new windows for additional financial support to meet the financing requirements,” said State  Minister Finance Dr Aisha.

The monthly debt bulletin report showed that the international lenders disbursed just $179 million worth of loans in July, as the foreign inflows have come to a standstill in absence of the International Monetary Fund (IMF) umbrella.

Out of $179 million, an amount of $100 million was on account of the Saudi oil facility on deferred payments.

Another sum of $65 million was disbursed by the World Bank, according to the economic affairs ministry.

When contacted, a senior official of the economic affairs ministry said they had suggested to diversify the development financing portfolios and to reach out to the international partners for diversification of the commodity financing operations.

He added that the economic affairs ministry was of the view that only safe deposits could be rolled over.

The sources said it was discussed during the meeting that only $16 billion external public and publicly-guaranteed debt could be rescheduled – loans largely extended by China.

The Chinese debt is mostly concessional, according to the economic affairs ministry.

Pakistan owes $26.8 billion to China on account of bilateral and guaranteed debt, according to the sources.

It was discussed during the meeting that the debt servicing of Chinese bilateral and guaranteed loans in the next five years would stand at $5.3 billion.

The commercial Chinese loans servicing was, in addition to this, could not be rescheduled, according to the sources.

The Chinese commercial loans amount to $6.5 billion while another $4 billion are on account of state administration of foreign exchange (SAFE) deposits. The sources said the SAFE deposits could be rolled over for an extended period of up to five years to reduce related risks.

According to the economic affairs ministry, Pakistan’s non-concessional commercial debt stock was $25.3 billion on account of bonds, cash deposits and commercial loans.

The country needs $36.5 billion in the next five years to service this debt.

This sum includes $8.8 billion worth of sovereign bonds, $7 billion cash deposits and $9.5 billion worth of commercial loans.

The sources said that the Saudi SAFE deposit of $3 billion is expected to be rolled over in December.

However, the meeting was informed that the rescheduling of the $18 billion commercial loans and sovereign bonds was not feasible, as seeking such relief would mean declaration of a default.

The stock of the multilateral debt was $35.4 billion, which was mostly concessional.

During the next five years, the country needs $13.7 billion for its debt servicing. The meeting was told that the multilateral creditors did not offer rescheduling except for a few cases where the debtor country had to declare itself as a highly indebted and poor country (HIPC).

Pakistan’s bilateral debt stock was over $20 billion and it needs $10.6 billion for servicing in five years.

The country has already availed $3.7 billion worth of debt rescheduling from the group of G-20 nations to cushion against the negative impacts of the coronavirus pandemic.

The $20 billion is inclusive of $16 billion Chinese bilateral debt.

The sources said the Paris Club creditors were currently offering rescheduling under the G-20 Common Framework but it required rescheduling of commercial loans in addition to bilateral debt which was equivalent to declaration of a default. This option was also ruled out during the meeting.