Pakistan to repay $30 billion debt in FY25

Pakistan's central bank has reported the country is scheduled to repay maturing foreign debt and make interest payment on the accumulated external debt totalling $30.35 billion in 12 months (August 2024 to July 2025) including those significant loans which bilateral creditors roll over every year.

Citing State Bank of Pakistan's (SBP) latest data of Friday, JS Global reported the country is to repay maturing foreign debt worth $26.48 billion in the 12 months and pay another $3.86 billion on account of interest expense in the period.

Pakistan's repayments and interest payments are fully secured under the latest $7 billion IMF Extended Fund Facility (EFF) through the loan period of 37 months.

The data, however, pointed out the foreign debt repayments and interest payments are rising every passing year, emphasizing upon the government economic managers, planners and parliamentarians to find ways to increase foreign income of the nation and cut external expenditures.

The latest data suggests the sum of $30 billion is notably high compared to $21.2 billion (including rollovers) the country paid over the past 12 months (August 2023 to July 2024), according to the research house.

The jump in sum of repayments and interest payments for the ongoing 12 months was recorded after Saudi Arabia, UAE and IMF provided fresh loans worth around $4 billion in late June and July 2023 and IMF lent another $2 billion between August 2023 and April 2024, mounting the repayment pressure (including significant rollover) in the years to come, it was learnt.

The breakup of the central bank data suggests Pakistan is to pay off debt and meet interest expense at a total of $27.7 billion in 9 months starting next month of November 2024, projecting the country is to pay on an average slightly over $3 billion a month till July 2025.

Most of the large payments (including significant rollover) are usually made in June and July every year, estimated to the tune of $9-10 billion combined in the two months.

Besides, the country was to pay a sum of $658 million in August and another $1.92 billion in September and October, totalling $2.63 billion in the first 3 months.

Financing requirement at 9-year low

Citing the latest IMF documents, Topline Research, however, reported the country's gross external financing requirement has dropped to a 9-year low of $18.8 billion (excluding expected rollovers and contained current account deficit) for the ongoing fiscal year (July 2024 to June 2025).

"Average gross financing requirement over the last 9 years has remained at $25 billion. This is contrary to the common perception that Pakistan has to pay a record high amount in next few years," Topline Securites CEO Muhammad Sohail said in a brief commentary.

Director Research at the securities, Shankar Talreja, added Pakistan has fully arranged the projected gross financing requirement. They are planned to be met through expected Foreign Direct Investment (FDI) of $2 billion, IMF loans at $4 billion, raising debt from global capital markets through selling new Eurobond and Sukuk and securing new loans from World Bank and Asian Development Bank (ADB) in FY25.

He said the government is expected to float Eurobond and Sukuk in late FY25 or in FY26 after global credit rating agencies like Fitch and Moody's upgrade Pakistan rating to investment friendly 'B' from 'CCC+' at present.

In any case, however, Pakistan is estimated to add up fresh foreign loans to the tune of $3 billion to $4 billion in the ongoing fiscal year (FY25), Talreja said.

In term of debt-to-GDP ratio, however, the foreign debt has dropped to 20.2% in August 2024 from 27.6% in the same month of the last year, as the nation's economy expended in FY24 compared to contraction in FY23.

The way forward

Arif Habib Limited, Head of Research, Tahir Abbas said Pakistan's foreign debt has continued to increase mainly to finance current account deficit (CAD) over the past 10 years. "The sum of current account deficit stands equivalent to growth in external loans over the past 10 years."

Therefore, the present government and the central bank have adopted a good strategy to contain CAD at breakeven level by limiting imports at sum of export earnings and inflows of workers' remittances. The step would help containing foreign debt initially and receding in the years to come.

Secondly, the government is required to attract new foreign direct investment (FDI) into export projects to increase export earnings instead continue to market import-led projects to foreign investors.

Besides, the nation has to cut its external expenditures through import substitution. Such remedies would help improving the nation capacity to make external payments and boost foreign exchange reserves, he said.