External public debt falls by $4.7b

Debt shrinks in dollar terms as foreign banks refuse to roll over loans

ISLAMABAD:

Pakistan’s external public debt shrank by $4.7 billion in the past one year and stood at $97.5 billion primarily due to the decision of foreign commercial banks not to roll over their maturing debt – a gain that did not translate into any real benefit due to steep currency devaluation.

Despite the reduction in the external public debt in dollar terms in the last calendar year, the government’s external debt jumped from Rs14.8 trillion to Rs17.9 trillion, according to the State Bank of Pakistan (SBP). There was an increase of Rs3.1 trillion in rupee terms, thanks to 28.3% currency devaluation.

The central bank released the figures the day Finance Minister Ishaq Dar departed for the United Arab Emirates (UAE) aimed at removing hurdles in the way of bilateral loans by the Gulf nation and exploring the possibility of selling state assets.

Concrete commitments from the UAE, China and Saudi Arabia are critical for Pakistan for an early board meeting of the International Monetary Fund (IMF) for approval of a $1.1 billion loan tranche.

The government needed Rs28 more on every dollar that it had to return to the international creditors due to currency depreciation. At the end of December 2022, the rupee-dollar parity stood at Rs226.47, a ratio that has further deteriorated over the past one and a half month that will reflect in the upcoming debt bulletins.

According to the figures released by the central bank on Thursday, the external public debt decreased in one year from $102.2 billion to $97.5 billion by December 2022.

The reduction did not come because of any increase in the country’s income. Rather the amount was paid out of the gross foreign exchange reserves that dipped by $12.1 billion, or 68%, in the last calendar year.

The official foreign exchange reserves were $17.8 billion in December 2021, which dipped to $5.7 billion by the end of December 2022. The figures released by the central bank showed that the reserves have further depleted to $3.2 billion.

Foreign commercial loans that stood at $10.2 billion a year ago decreased to $6.9 billion, according to the SBP. Chinese and non-Chinese commercial banks have been withdrawing their financing facilities since Pakistan could not timely secure a deal with the IMF.

Total external debt and liabilities also decreased to $126.4 billion as of December 2022.

Overall, Pakistan’s debt and liabilities peaked, by an unsustainable 23.5%, to Rs63.9 trillion at the end of December 2022, massively increasing the cost of debt servicing.

According to the SBP, the total liabilities of the country, mainly government debt, surged by Rs12.1 trillion, or 23.7%, compared to a year ago.

The figures in the central bank’s latest debt bulletin suggest that no political party, neither the Pakistan Tehreek-e-Insaf (PTI) nor the Pakistan Muslim League-Nawaz (PML-N), has a solution to the growing debt problem.

With the mounting loans, coupled with a lack of repayment resources, the country’s destiny has been placed in the hands of international financial institutions and global powers.

The central bank did not give the percentage of Pakistan’s total debt and liabilities in terms of the size of economy.

The increase in public debt alone, a direct responsibility of the government, was Rs10 trillion in the past one year. Gross public debt was recorded at Rs52.7 trillion by the end of December 2022, according to the SBP.

None of the three mainstream political parties has managed to bring any meaningful reforms to stop the accumulation of debt. Instead, in its 43-month rule, the PTI added the largest-ever amount of debt.

The total external debt jumped to Rs28.6 trillion as of the end of December 2022, an addition of Rs5.6 trillion, or 24%, compared to the previous year.

Excluding the IMF loans, the federal government’s external debt increased to Rs17.8 trillion within one year. There was a net increase of Rs3.1 trillion, largely caused by the depreciation of the rupee.

The IMF debt increased by 45% within one year to Rs1.7 trillion by the end of December, stated the SBP.

The federal government’s total domestic debt rose to Rs33.1 trillion, an addition of Rs6.4 trillion, or 24%, in one year. A lower-than-targeted tax collection, steep currency devaluation, high interest rates, rising expenditures along with losses incurred by state-owned companies and debt mismanagement were the main reasons for the surge in public debt and interest payments.

The direct consequence of the mounting debt pile is a huge increase in the cost of debt servicing. The IMF has been informed that the country will spend a minimum of Rs5.2 trillion on debt servicing in the current fiscal year.

The debt on account of commodity operations and public sector enterprises increased to Rs4.4 trillion, up Rs807 billion within one year. Pakistan cannot sustain this outside of the budget liability for a longer period.

Published in The Express Tribune, February 17^th, 2023.

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