Pakistan to repay foreign debt worth $22 billion in 12 months

Data shows SBP projects no foreign debt inflows for next 12 months

Salman Siddiqui February 08, 2023


Amid efforts to dodge the imminent risk of default, Pakistan says it is due to repay foreign debt and interest worth almost $22 billion over the next 12 months.

The dollar-strapped government, upon successful resumption of the International Monetary Fund (IMF) programme, is expected to initiate talks with creditors to restructure its foreign debt. The country’s debt obligations currently stand significantly higher than the inflows it expects to receive in the coming years.

Data from the State Bank of Pakistan (SBP) suggests that Pakistan is to repay a total debt of $21.95 billion in one year; $19.34 billion in principal and another $2.60 billion in interest on the total debt.

According to data, however, the central bank has projected no foreign debt inflows for the next 12 months.

The breakdown of data suggests the country is to pay off $3.95 billion within one month. In the next three months, it is due to return $4.63 billion and is to repay another $13.37 billion in the last eight months of the period under review.

Speaking to the Express Tribune, PKIC Head of Research, Samiullah Tariq said, “Pakistan is passing through an extraordinary financial crisis. Accordingly, it needs to take extraordinary measures.”

“The country needs thoughtful planning to sail out of its current financial crisis and enter into a definite future. It should work on all the available options to control foreign expenditure and boost income,” he added.

Explaining that Pakistan needs to meticulously plan how it can increase foreign exchange reserves, Tariq said, “The country needs to boost the confidence of overseas Pakistanis and make the domestic economy attractive in order secure increased Roshan Digital Account (RDAs) inflows.”

“The government has recently revised the rate of return on Naya Pakistan Certificates to attract higher inflows from non-resident Pakistanis,” he recalled.

“Apart from the this, the government should restructure its existing debt, enter the new IMF programme after the current one ends in June 2023, cut imports, boost export earnings and workers’ remittances through official channels,” suggested Tariq.

Recalling that former finance minister, Miftah Ismail was in favour of taking new loans instead of restructuring the current debt, Tariq hoped the nation would successfully revive the stalled IMF loan programme at the end of ongoing talks in Islamabad.

“We are expected to achieve staff level agreement with the IMF in a couple of days, after which the IMF Executive Board will approve the programme and release a $1.1 billion loan tranche,” he explained.

Pakistan is to return around $80 billion in foreign debt over the next three-and-half years (from February 2023 until June 2026).

On the contrary, however, the country’s foreign exchange reserves have depleted to an alarming level of less than a three-week import cover at $3.1 billion at present.

Arif Habib Limited (AHL) Head of Research, Tahir Abbas said, “The government should opt for re-profiling its foreign debt instead of restructuring. Re-profiling will help the government get an extension of about four to five-years to repay debt from bilateral and commercial creditors, including friendly-countries like China, Saudi Arabia and the United Arab Emirates.”

Restructuring, he explained, is what the nation has been doing for a while and will only allow the debt to be rolled over for a brief period of time – around one-year.

“The re-profiling will end uncertainty on debt repayment in the short-term and help shift the government’s focus towards much needed economic reforms,” he explained.

Abbas said the government may re-profile debt worth $13 billion. This is expected after the next government comes into power in the aftermath of the October 2023 parliamentary elections. He underlined that fiscal deficit is likely to remain elevated at 6.8% of GDP (well above the 4.9% budgeted). Fiscal tightening and the impact of rupee depreciation is expected to keep inflation elevated – likely to rise above 30% over the next few months and average at 27% in FY23.

“In this backdrop, the SBP shall maintain a tight monetary policy and raise rates by another 100-200 basis points before June 2023 with gradual easing from the fourth quarter of 2023 as inflationary pressures subside,” predicted Abbas. “In the backdrop of further monetary and fiscal tightening, we estimate GDP growth to decline to 1.1% in 2023, compared to 6% in the previous year (FY22).”

Published in The Express Tribune, February 8th, 2023.

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