Pakistan on Tuesday said that it had made arrangements for repayment of $3.7 billion in principal debt, maturing in two months, ruling out any possibility of default despite thin prospects of reaching a staff-level agreement with the International Monetary Fund (IMF).
In a statement, the Ministry of Finance confirmed that $3.7 billion of debt was maturing between May and June this year.
Out of that, a debt of $3.2 billion will mature in June, according to sources. The total amount appears exclusive of interest payments which are around $475 million.
Pakistan is also required to make major interest payments on Eurobonds before the end of June.
“This should not be any cause of concern as arrangements have been made for the rollover and repayment of this debt,” the finance ministry emphasised.
The total repayment of over $4 billion from now till June is equal to 90% of the gross foreign exchange reserves held by the central bank.
Pakistan is scheduled to make a repayment of $2.3 billion to China. This includes $1 billion in SAFE deposit and two commercial loans totaling $1.3 billion, according to the sources.
It is expected that China will timely roll over the $1 billion SAFE deposit. However, the commercial loans extended by the China Development Bank and the Bank of China have to be repaid before these are refinanced by Chinese authorities.
It may take some time and the repayment will temporarily dent the foreign exchange reserves of $4.5 billion.
The finance ministry stated “during this period (May-June), significant inflows are also in the pipeline.”
The coalition government has averted default and the economy is now on course to stability and growth, it claimed.
Sources said that China had advised Pakistan to cool down political temperature and bring normalcy to the economic situation. It is not clear whether China will timely refinance the commercial loans after a fresh wave of political instability and law and order disturbance, caused by the arrest of former prime minister Imran Khan.
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Pakistan cannot keep its foreign exchange reserves at current levels without active support from Beijing. The increasing political temperature may also trigger an economic meltdown.
The finance ministry issued the statement a day after Pakistan reached out to IMF Executive Director Bahador Bijani and requested him to play his role in convincing the lender to soften its stance.
Sources said that mistrust between Pakistan and the IMF had increased significantly and there were very thin chances of clinching a staff-level agreement. The $6.5 billion IMF bailout is going to expire by the end of June with three reviews still pending involving undisbursed loans of $2.6 billion.
The IMF has lately questioned some of the information shared by the Ministry of Finance and sought further clarification. The lender is also seeking details of next fiscal year’s budget.
Moody’s credit rating agency said on Tuesday that Pakistan’s financing options beyond June were highly uncertain and without an IMF programme, Islamabad could default given its very weak reserves.
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For the next fiscal year, Pakistan’s gross external debt repayments are estimated at $25 billion, including the $11 billion maturing between July and December.
Finance Minister Ishaq Dar met on Tuesday with Chinese Embassy Charge d’affaires Pang Chunxue. The minister requested the Chinese diplomat to expedite the rollover of $1 billion deposit and refinance the commercial loans.
Pakistan had also earlier made similar requests to the Chinese authorities.
Dar underscored the need to deepen bilateral relations further in economic, trade and financial sectors, according to the Ministry of Finance.
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The two sides discussed various avenues, especially available for both countries to enhance the existing cooperation to unprecedented levels. They also talked about the progress on CPEC projects and programmes in Pakistan.
Pang said that China wished to work together with Pakistan to bring economic prosperity to the region. The finance minister added that Pakistan, with the support of China, was confident to make the South Asian nation a growing economy in the region as well as the world soon.
Published in The Express Tribune, May 10th, 2023.
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