Pakistan has to repay over $23bn external debt this year

ISLAMABAD: Pakistan has to repay over $23 billion on account of external debt servicing in the current fiscal year, it has been learnt.

Out of the total $23 billion in external debt servicing, there are deposits of $12 billion in two different categories, with the expectation of securing a rollover from the ‘generous’ friendly countries.

Islamabad will have to repay around $11 billion in external debt servicing to the multilateral, bilateral creditors, international bondholders and commercial lenders in the current fiscal year. However, if bilateral creditors refuse to grant rollover out of the total foreign deposits, then there is a risk of its repayment.

The foreign debt servicing requirement will go up and is going to require $500 million repayment in September 2025 on account of maturity of Eurobond. The debt to GDP ratio, which has witnessed improvement owing to ballooned inflationary pressures, resulted in jacking up the nominal GDP (Gross Domestic Product (GDP) growth numbers in the past few years, but now in the wake of reduced inflation and lowering nominal growth, the debt to GDP ratio is going to worsen in the coming months.

“The total public sector external debt requirements are hovering at $15 billion, including $4 billion SAFE Deposits from China on the books of the Ministry of Finance and Economic Affairs Division for the ongoing FY2025-26,” top official sources said.

The remaining $9 billion external debt servicing is on the books of the State Bank of Pakistan (SBP), including loans obtained from the IMF and foreign deposits on which the rupee cover for the budgetary support is not allowed.

Of these deposits, $5 billion is from the Kingdom of Saudi Arabia, $2 billion from the UAE, and approximately $1 billion from Qatar. From the old days, there are deposits of $700 million lying in the SBP from Kuwait.

Of two major repayments that will become due on the maturity of Eurobonds, one will be due in September 2025, worth $500 million, which was launched for 10 years, backed in 2015 at the rate of 8.25%. The second repayment will be due on the maturity of Eurobond worth $1 billion, which was launched in April 2021 at a rate of 6% for five years.

There will be total bond repayment of $1.7 billion along with interest payment, commercial loans of $2.3 billion, multilateral creditors’ repayment of $2.8 billion from the World Bank, the Asian Development Bank, the Islamic Development Bank, and the Asian Infrastructure Investment Bank and bilateral loans repayment of $1.8 billion during the current fiscal year. There is an outstanding amount of SAFE deposits of $4 billion from China.

Sources say Minister for Finance Muhammad Aurangzeb has been briefed on the Medium Term Debt Strategy (MTDS) with the expectation of launching a Panda bond in the current fiscal year, but it is currently facing some hitches.

The launch of other international bonds, especially Eurobond or Sukuk bond, seems difficult keeping in view the higher global interest rate and increased risk premium of the country.

The possibility of launching an international bond with a possible rate close to 10 percent becomes difficult to sell to the domestic audience in the presence of a polarized political environment in the country.