The International Monetary Fund (IMF) has projected that Pakistan’s external debt may remain around $131 billion by June 2025 – about $8 billion less than the previous forecasts – due to reduced needs for money for debt repayments and a relatively lower current account deficit.
Sources told The Express Tribune that the global lender has downwardly revised its external debt projections for two financial years – the ongoing fiscal year 2023-24 and the next financial year 2024-25. These revisions were made at the time of the first programme and are subject to vetting by the IMF management.
These estimates would be further reviewed during the next round of talks, likely to take place in February or March next year, depending on the timing of the formation of the next government after the February 8th elections.
As opposed to the four-month-old projection of $131 billion external debt by June 2024, the IMF now sees the stocks nearly at $124 billion, said the sources. However, the IMF’s projection seems on the lower end, as Pakistan’s external debt has already increased to $128 billion by September this year, according to the central bank’s data.
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The reduction in the projected stock of debt is the result of the relatively lower current account deficit and lower repayments of foreign debt due to restructuring by China.
The sources said that another key factor behind the lower-than-earlier-projected external debt was that the State Bank of Pakistan (SBP) was now purchasing dollars from the open market, which would lessen the need for foreign loans by the same amount. The central bank has informed the IMF about its purchases of foreign currency from the local market.
The interim Finance Minister Dr Shamshad Akhtar admitted on Thursday that Pakistan’s public debt has become unsustainable, saying the country has also been priced out of the international credit markets due to the rising cost of debt. She further stated that there were complexities too in the restructuring of external debt, which is mainly owed to either preferential creditors or private lenders.
For the fiscal year 2024-25, starting from July next year, the IMF has projected the external debt at $131 billion – $8 billion lower than its four-month-old estimates, said the sources. Out of the total external debt, the external public debt is projected to increase to $103 billion by June 2025 – a figure that is $5 billion less than the old numbers.
Pakistan’s income from foreign sources remains far lower than its expenditure on account of debt payments, current account deficit financing, and repatriation of profits by the companies that have already invested in Pakistan. The gap is filled by taking more loans from international creditors.
Read: IMF expects dollar price to improve
The IMF’s fresh projections showed that even for the next fiscal year, combined income on account of exports, foreign direct investment, and foreign remittances was slightly lower than the needs for imports, leaving the government in search of more loans for the payment of old loans.
However, the IMF’s projections often undergo drastic changes.
The revisions to the gross external financing requirements -- a sum of money needed to fill the CAD as well as the repayment of maturing debt -- were made during this week’s first review of the $3 billion bailout package.
In comparison with July this year, the IMF has also lowered the foreign loan requirements for the next fiscal year 2024-25 from $27.2 billion to $21.8 billion -- a reduction of $5.4 billion.
The sources said that the IMF has lowered the current account deficit projection of $6.5 billion to $5.1 billion for the next fiscal year. This would reduce the debt requirement by the same amount.
The estimated reduction in the foreign loans requirements was also because of the private sector’s less repayments by $2.2 billion and $1.8 billion by the public sector. The reduction in public sector debt repayments was mainly because of a rollover of dues by China’s Exim bank. The Exim bank provided a total relief of $2.4 billion over two years by only extending the repayment period. This would, in return, increase the repayments for the fiscal year 2025-26.
The IMF had earlier estimated the public sector external debt repayments at $13.2 billion, which have now been projected at $11.4 billion. The private sector repayments have also been lowered to $3.8 billion for fiscal year 2025.
As against the old forecast of $35 billion, the IMF has now projected foreign remittances at $31 billion for the next fiscal year, showing no major improvement in the non-debt creating inflows compared to this fiscal year. The exports have also been adjusted downwards to $30 billion, they added.
Published in The Express Tribune, November 26th, 2023.
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