Saudi Arabia rolls over $3b debt for one year
Saudi Arabia has extended the $3 billion debt repayment period by another one year - the third extension in as many years -- after Pakistan could not fulfill its promise to pay the debt by Thursday due to successive governments' failure to generate enough foreign non-debt creating inflows.
It was the first extension in a series of debt extensions, which Pakistan would need from now till the end of June next year to avoid at least $13 billion more repayments to Saudi Arabia, China and the United Arab Emirates.
Another $2 billion Saudi cash deposit will be maturing by mid of June next year, which Pakistan will again not pay back and get a rollover, said the Finance Ministry sources.
"The Saudi Fund for Development (SFD) on behalf of the Kingdom of Saudi Arabia has extended the term for the deposit of $3 billion maturing on 5 December 2024 for another year," the central bank announced on Thursday - the last day to make the payment.
The State Bank of Pakistan stated that Saudi Arabia had placed the $3 billion deposit initially for one year in 2021 and subsequently rolled over it in 2022 and 2023, after the issuance of the royal directives that reflect the continuation of the close relationship between the two brotherly countries.
It was the third extension despite former prime minister Imran Khan and the incumbent PM Shehbaz Sharif promising to pay back the debts on time.
Both the government of Pakistan and the International Monetary Fund have been implementing a policy to seek debt rollovers from China, Saudi Arabia and the UAE to avoid sovereign default. However, the restrictions of not paying the debt are only imposed in case of these three nations as the debts of the World Bank, the Asian Development Bank and the IMF are paid on time.
Pakistan owes 45% of its total external public debt to the bilateral creditors with China as the single largest lender. Another 45% debt is owed to the multilateral creditors. The World Bank is the single largest multilateral creditor with $20 billion exposure to Pakistan as of end 2023, according to its International Debt Report.
The policy to avoid default and formal debt restructuring has been compounding Pakistan's debt problems due to an increase in the debt stock and constantly growing interest payments.
The WB report stated that "Pakistan made the second-largest interest payments in the region".
The SBP said that extension of the term of the deposit is continuation of the support provided by Saudi Arabia to Pakistan, which will help in strengthening the foreign exchange reserves and contribute to the country's economic growth and development.
Upcoming debt repayments
The sources said that in the next six months the government will have to make at least $13 billion repayments to the three bilateral creditors.
The $3 billion UAE debt will mature soon, including $2 billion in the next couple of months. Another $2 billion Saudi debt will mature after mid of June, said the sources.
Pakistan is supposed to make roughly $8 billion repayments to China in the next six months. These include cash deposits, including $2 billion maturing in March. Pakistan will make a $500 million commercial loan payment to China in March, another $500 million in April and $2.4 billion in June.
The World Bank debt report stated that with almost $29 billion in loans, China continued to be Pakistan's largest bilateral creditor while Saudi Arabia emerged as the second largest bilateral lender with about $9.2 billion.
The International Debt Report 2024 put Pakistan's total external debt at roughly $131 billion in 2023, accounting for 352% while Pakistan's total external debt servicing amounted to 43% of total exports.
Unlike in the past, the IMF loans are also not helping to secure major fresh lending and the SBP is now compelled to buy dollars from the market by artificially keeping the dollar rate higher compared to rupee.
The Tola Associates a tax and corporate advisory firm – has stated that the average exchange rate should not have been more than Rs212 to a dollar as against the current price of Rs278. The firm's assessment is based on the last over two years' dollar price.
Deputy Prime Minister Ishaq Dar sees the dollar value at Rs235 to Rs240.
The central bank reported on Thursday that as of last week, the SBP reserves increased by $620 million to $12.1 billion. The increase is mainly on account of the official inflow of $500 million from the ADB.
The total official reserves were still lower than the six-month debt repayments needed to just three bilateral creditors. However, Pakistan's exports and foreign remittances have started gradually increasing and there is now a need to sustain the momentum.
Pakistan has also separately requested China to reschedule another $3.4 billion worth of official and guaranteed debt for two years, which is maturing during the IMF programme period. The rescheduling of the $3.4 billion project debt was very crucial for Pakistan to meet its $5 billion external financing gap that the IMF identified at the time of signing of the bailout package in September.