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Thursday October 03, 2024

$100bn debt to be repaid over four years, NA panel told

Finance ministry informed NA panel that government was committed to restoring energy sector’s viability

By Mehtab Haider
September 20, 2024
A foreign currency dealer counts US dollar notes at a currency market in Karachi on July 19, 2022. — AFP
A foreign currency dealer counts US dollar notes at a currency market in Karachi on July 19, 2022. — AFP

ISLAMABAD: Pakistan’s foreign debt repayments have been estimated to climb to $100 billion over a four-year period, despite foreign reserves standing at $9.3 billion. This startling disclosure was made during the National Assembly’s Standing Committee on Finance meeting.

Also, the finance ministry informed the NA panel in its written reply that the total external financing gap stood at $5 billion for the three-year period. “All prior actions including assurances for external financing gap, identified by IMF of $5 billion over the programme period, have been completed,” the finance ministry confirmed. It added that the agreement for $7 billion under the Extended Fund Facility (EFF) was subject to approval by the IMF Executive Board, which was expected on Sept 25, 2024.

Without mentioning the National Finance Commission (NFC) Award explicitly, the ministry informed the panel that the government would also work in close coordination with the provinces to re-balance the federal and provincial spending in line with the 18th Amendment in sectors such as higher education, health, social protection and public infrastructure. “Provinces have also committed to increase their tax revenues. To this end, the provinces will institute the necessary legislative measures to align their Agriculture Income Tax regimes with that of the federal Personal and Corporate Income Tax,” the statement said. The rate of corporate income tax stands at 45 per cent.

However, sources quoted Minister for Finance Mohammad Aurangzeb as saying during an in-camera session that total external financing of $12 billion was required under 37 months of the IMF programme, out of which $7 billion would be provided by the IMF, while the remaining $5 billion would be materialised through other multilateral and bilateral creditors. The government secured $2 billion in external financing assurances for the current fiscal year and the remaining $3 billion would be managed in the next two fiscal years, including $2 billion in second year and $1 billion in the last year of IMF programme. Out of $5 billion additional financing gap, $2 billion plus $2 billion would be managed in the first and second years, plus $1 billion in the last leg of the IMF bailout package.

Director General Debt Office Ministry of Finance Mohsin Chandna extended a briefing to the committee and stated that the debt-to-GDP ratio declined and stood at 67.2pc of GDP during the last fiscal year. The nominal GDP ballooned owing to higher inflationary pressures, it helped the show improvement on debt to GDP ratio but the FBR’s tax-to-GDP ratio had deteriorated.

The rollover of Pakistan’s foreign debt, he said, stood at $12.7 billion and these rollovers were secured from China, Saudi Arabia, the UAE and Kuwait.

Nafisa Shah, an MNA from the PPP, asked the government about any strategy other than securing loans, the state minister for finance replied that there was no choice but to get more loans to pay off the outstanding debt and liabilities.

The finance ministry informed the NA panel that the government was committed to restoring energy sector’s viability and minimising fiscal risks through timely adjustments of energy tariffs, decisive cost reducing reforms and refraining from unnecessary expansion of generation capacity. The State Bank of Pakistan would continue to maintain a flexible exchange rate and continue improving the functioning of exchange market and the transparency of FX operations.