Moody’s report: International bonds weaken Pakistan’s debt affordability

Published: November 8, 2015
Credit rating agency says country’s net external debt will swell to $68 billion by this fiscal end. PHOTO: REUTERS

Credit rating agency says country’s net external debt will swell to $68 billion by this fiscal end. PHOTO: REUTERS


Pakistan’s debt affordability has weakened after it shifted to non-conventional loans by issuing $3.5 billion worth of international bonds, increasing its borrowing costs, according to the latest report by an international credit rating agency.

The concerns of the Moody’s Investor Services about Pakistan’s debt affordability come just as the International Monetary Fund (IMF) has projected that the country’s net external debt will increase by $3 billion to a whopping $68 billion when the current fiscal year ends. According to the lender, Islamabad will need $6.7 billion during the current year to service external debts alone.

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The IMF also projects that Pakistan’s external debt will balloon to $74.5 billion by the end of the incumbent government’s five-year term. External debt stood at $60.8 billion in 2012-13. The PML-N came to power towards the end of that fiscal year.

Moody’s reports also comes amid growing criticism against the PML-N government’s policy of borrowing funds by floating international bonds at very high interest rates. The government raised $500 million in September by floating dollar-denominated Eurobonds for 10 years at a rate of 8.25%.

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A decline in exports and a negligible increase in foreign direct investment have increased the government’s reliance on expensive foreign borrowings. Pakistan’s external debt in percentage of exports is projected to be increased to 228.2% by end of the current financial year, up from 218% last year.

Moody’s said the move by six countries, including Pakistan, towards more non-conventional financing has led to higher borrowing costs. The six countries borrowed $16.4 billion in last one and a half years, according to the agency. Pakistan borrowed $3.5 billion, accounting for 21.4% of the total figure.

A recent report by the finance ministry’s debt office substantiated Moody’s assessment. It showed that the ratio of total external debt that is maturing within a year stands at 8.1%, up from 7.7% in 2014. The report also revealed that the average maturity period of Pakistan’s total external debt has also decreased from 10.5 years to 9.4 years, increasing refinancing risks.

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According to Moody’s, the share of concessional external debt is shrinking after the six countries, including Pakistan, tapped the bonds market. It said these countries were issuing bonds due to easy access and less stringent conditions attached to this mode of borrowing, unlink concessionary lending from international lenders like the World Bank and Asian Development Bank.

Moody’s rating focuses primarily on credit quality or the ability and willingness of the borrower to repay debts. Pakistan has been given a B3 rating, which is a sub-investment grade with a stable outlook. Sub-investment grade countries primarily rely on concessional financing from multilateral institutions to meet their public debt needs.

Moody’s said that overall susceptibility to event risk was also high in Pakistan. There was also high domestic political risk and high geopolitical risk in Pakistan. “Geopolitical tensions in Bosnia and Herzegovina, and Pakistan can also weigh on credit quality, which may ultimately undermine credit ratings of the countries,” it added.

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Institutions are also weak in these frontier economies. Moody’s said corruption in Bangladesh and Pakistan is a hurdle for private investment and general business sentiment.

The agency said only a select group of countries are well placed for credit rating improvements. However, conditions leading to credit rating improvement mentioned in the report suggest that Pakistan is not among these countries.

Pakistan also lacks the strengths which can make a typical frontier market an emerging market. Most frontier markets rank high on trade openness but Pakistan is ranked 169th out of 189 economies surveyed by WB for ease of doing business.

A country can benefit from demographic dividends only if it has better education and health standards – areas where Pakistan is performing miserably, according to various United Nations reports. The quality of human capital also lags in Pakistan.

Published in The Express Tribune, November 8th, 2015.

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Reader Comments (26)

  • Np
    Nov 8, 2015 - 9:54AM

    Blaming Ishaq Dar is pointless. The foreign exchange reserves at a certain level are necessary for a functioning economy. It is not as though Pakistan is avoiding the multilateral agencies due to the strict terms and conditions but it has maxed out how much it can get from those sources.The only alternative to getting these commercial loans is to cut down imports. This me be the real solution but an unpopular one because with debt at such a high percentage off exports, Pakistan is clearly leaving beyond its means.
    It is also worth stating that there are many levels below the investment grade and Pakistan is in one of the lowest. It would need to climb six more levels to get to an investment grade rating.

    Last but not the least, the CPEC s a far more expensive investment at 17.5% guaranteed rate of return in dollars compared to the 8.25% in commercial borrowing rate. So people who think this project will be transformational need to also think about how it will be paid for.Recommend

  • pk
    Nov 8, 2015 - 9:59AM

    With all the hullabaloo about CPEC is waning fast the real challenges are popping up.Recommend

  • Fahim
    Nov 8, 2015 - 10:07AM

    Pakistanis don’t deserve ex President Musharaf who kept external loans as its place at 38 Billion US dollarsRecommend

  • Tyggar
    Nov 8, 2015 - 10:21AM

    Doesn’t matter, Pakistanis are more concerned about “intolerance” in India or problems in PalestineRecommend

  • Alien1
    Nov 8, 2015 - 10:26AM

    next greece in the making, IMF from one side and china on the other will make sure pakistan never comes out of debt. The end game has neared pakistan’s resources will be shared by IMF and china.Recommend

  • Salman
    Nov 8, 2015 - 11:02AM

    The Moody’s horrifying report indicates that:

    1) “Pakistan’s debt affordability has weakened”
    2) “Decline in exports with no FDI have increased reliance on expensive foreign borrowings”
    3) “Overall susceptibility to event risk is high in Pakistan”
    4) “High domestic political risk and high geopolitical risk in Pakistan”
    5) “Corruption in Pakistan is a hurdle for investments and general business sentiment”
    6) “Lacks better education and health standards”
    7) “Quality of human capital lags in Pakistan”

    After the looting of PPP, PML-N has improved the chances of an economic collapse in next two years. Can any one save Pakistan NOW??????Recommend

  • ajeet
    Nov 8, 2015 - 11:15AM

    This is the reason you need baniyas. Only an idiot will borrow from Europeans for 8 percent when baniya companies in neighboring country is able to borrow for 2 percent.Recommend

  • raider
    Nov 8, 2015 - 11:50AM

    Myth of stable economy badly exposed!!Recommend

  • Aftab
    Nov 8, 2015 - 12:25PM

    Waiting on Ch. Allah Daat, Adnan Siddiqui and all PML N paid trolls to come and defend the experience team of Sharif Dynasty. Recommend

  • Nov 8, 2015 - 12:29PM

    What ? Moody’s do not know Pakistan is a nuclear countryRecommend

  • Karachiite
    Nov 8, 2015 - 1:21PM

    Extremely short sighted decisions by PML-N!Recommend

  • ishrat salim
    Nov 8, 2015 - 1:36PM

    Yes ! this govt has broken ” kuchkol ” as per their election slogan & manifesto, but replaced it with a bigger ” kuchkol “, yet supporters will not understand this article, as they are not from the poor section of society. This is also because, these PML N trolls are either from their rich & elite class, whose parents are footing the bill or they are themselves making money at the cost of poor people & use all kind of loopholes in the tax system to avoid paying taxes.Recommend

  • Yasir
    Nov 8, 2015 - 1:36PM

    Finance Ministry should not be given to any Chartered Accountant or Banker instead this office should be led by any Economist most preferably a Social Economist. I was watching a program where Asad Umer and Saleem Mandviwala slams Haroon Akhtar over the policies of Ishaq Dar by stating that it is shocking that PML N Govt raised debts by Eurobonds at the rate of 8.25pc (USD/EUR) where the prevailing interest rate in the country is 6pc (PKR). Who’s gonna stop these financial / economic terrorists & criminals!!!!!!!Recommend

  • Bharatiya Oz
    Nov 8, 2015 - 1:42PM

    No pun intended but a bitter truth is that over the next few years unless Pakistan government changes its stubborn stance against India, get ready people to loose sovereignty and “Pakistan banega Chinastan”… this is unfortunate truth as the more Pakistan goes into debts the only country it will keep wanting to rely is China which will keep running more projects similar to CEPC with lop sided financial benefits only to China in the long run. Though not palatable, ONLY India can save Pakistan and its sovereignty..Mark my words and wait for Tim to attest this.Recommend

  • Adil Noman
    Nov 8, 2015 - 2:44PM

    Thank you PML-N, we would be left bigger beggars then we were when you leave in 2018! I guess we deserve it as we vote for idiots again and again, and expect things to get better! Any decent economist/ accountant could have managed the economy better! The country wouldn’t let anyone invest due to the hurdles it creates to investors and businessmen, asking for under table money at every level, no wonder our finished commodities imports are at all time high! Tough times call for tough decisions but these monkeys are busy making their own banana republic when they can’t even see what happened to bhuttos, and all other not so great and great leaders! Recommend

  • tellmore
    Nov 8, 2015 - 3:12PM

    @Np: Already China has converted some of the earlier loans they have given to Pakistan in to Grants. Even this amount which is being invested into CPEC also, China will definitely convert as Grant in exchange of some land ( May be the access route to Gwadar from Kashgar). Already , the entire area is under chinese military control and gradually , that entire area will be handled and controlled by China. The transfer of the land will not be official but it will be practical.
    So no need to worry about loans.Recommend

  • Hameed
    Nov 8, 2015 - 4:47PM


    This is the reason you need baniyas.

    Baniya companies are screwing their own people big time. All big business are in the hands of a few families; TATAs, Ambanis etc. They have the most expensive houses in Mumbai and yet Hindus are living extremely miserable lives just outside these mansions. Ambani’s most expensive house in the world is built on the land of a Muslim Trust reserved for yateemkhana for children. Thanks but no thanks.Recommend

  • Atif
    Nov 8, 2015 - 5:51PM

    Where are all the PML-N supporters who always negatively comment on everything other than Sharif brothers..

    Government is handling the economy really poorly. They are doing corruption in such technical ways that comman man will not understand.

    Seems the dharna had an advantage after all when it was taking place…no new taxes or price increases were implemented.

    I used to think Imran Khan was an overly emotional person but in the long run I see his predictions about PPP and PML-N becoming true..Recommend

  • Realist
    Nov 8, 2015 - 8:56PM

    @ Atif

    I am not a PML-N supporter. Frankly I support none of the current political parties because none of them seem to have an iota of interest in helping the common man.

    Referring to your statement “I used to think Imran Khan was an overly emotional person but in the long run I see his predictions about PPP and PML-N becoming true.”

    What you suggest is Idiotic. Even a madman who says ‘it will rain someday’ is bound to be true someday. That does not make him a genius.

    Show me the good Imran Khan has done. His economic achievement, his political stance, his religious tolerance, his manifesto and what he has so far done in KPK. Show me the good and I will follow this man. So far, he has done little to improve KPK itself while blaming others bad.

    Be a representative of good and show the good thou hath done rather than pointing other’s fault.Recommend

  • Viraf Mehta
    Nov 8, 2015 - 10:35PM

    @Hameed. Hope you are happy. Keep deluding yourself and point fingers at others,this will surely improve the economy of your country. CheersRecommend

  • Zen
    Nov 8, 2015 - 11:21PM

    If you are using his platform, Bill Gates is also screwing you. He also lives in a lavish mansion.Recommend

  • khurram kaleem
    Nov 9, 2015 - 12:31AM

    Pakistan is least debted countries in the world . all developed world amass a lot of debt and use it to build capacity infrastructure .

    USD 65 billion is peanuts talking globally .GREECE has USD 300 BLN loan smallest country in
    EU .

    pakistan has a lot of assets made from loan like Margalla dam tarbella dam NEW york usd
    5 bln hotel managed by PIA. road infrastructure of 1.2 million km ,50 AIRPORTS, 20,000 mw IPPs total assets of paksitan exceed 65 billion external loan .SO don’t worry we have a positive balance sheet Recommend

  • Indo
    Nov 9, 2015 - 5:01AM

    @Bharatiya Oz If Pakistan maintained friendly relations with iNdia and moves on with reality, I totally agree. if push comes to shove, India is the only country that will lend a helping hand. Unfortunately no such realization in Pakistan neither civilian government nor the military.Recommend

  • Indo
    Nov 9, 2015 - 5:07AM

    @Bharatiya Oz If Pakistan maintained friendly relations with iNdia and moves on with reality, I totally agree. if push comes to shove, India is the only country that will lend a helping hand. Unfortunately no such realization in Pakistan neither civilian government nor the military.Recommend

  • someone
    Nov 9, 2015 - 6:46AM

    Tatas are Parsis and Ambanis are Sindhi. Azim Premji is a Muslim. Shiv Nader is not baniya either. However, lots of small and mid size trades are run by Baniyas. Now I don’t get the point of these businessmen screwing the people. Just because they have big houses? Or was it just a part of your national duty of cursing India?Recommend

  • Ajay
    Nov 9, 2015 - 7:32AM

    I think Pakistan should continue to build Nuclear weapons and militarising itself to call itself the Chaudhary of Muslim Ummah of the World. Conflict with India is its DNA because Indians are weak dhoti clad Hindu Baniyas while Pakistanis are progenies of Warriors like Tughlaq and Ghori. The Warriors never care for financial health and economic progress. They fight to keep their religion’s flag fly high. Riches will come by conquering Kashmir and Afghanistan and further expansion of territory by military strength.
    Alas the problem is the cash rich fellow brothers of the Ummah look the other way when their self styled Chaudhary is starving and Pakistan secretly desires that they can be the mercenaries of USA and China and somehow these Nations will convert its debt into grants!!Recommend

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