Foreign debt repayments up 15.73pc to $1.545bln in July-Sept

KARACHI: Pakistan coughed up $1.545 billion in foreign debt repayments in the first three months of the current fiscal year of 2016/17, up 15.73 percent over the same quarter of the last fiscal year, the central bank data showed on Thursday. 

The State Bank of Pakistan (SBP) recorded the external debt servicing – a sum of principle and interest payments on loan – at $1.335 billion in the July-September period of 2015/16. 

The major rise in external debt servicing came from higher repayments on account of external public debts. 

The repayment of principal amount on foreign debts increased to $1.257 billion in July-Sept 2016/17 from $1.090 billion in the corresponding period of 2015/16. Interest payments rose to $289 million as against $246 million.

Loan repayments to the International Monetary Fund’s (IMF), however, fell to $17 million as compared to $63 million a year earlier.

In August, Pakistan successfully completed a three-year $6.7 billion external fund facility programme of the Washington-based IMF.

Economists expressed concern over the rise in debt servicing and fall in exports revenue.

“The debt service as a percentage of exports earnings increased to 24.1 percent in FY16 from 22.5 percent in FY15,” said economist Ashfaque Hasan Khan. “[Usually], country’s external finances are healthier when debt service ratio is low — not more than 20 percent.”

Pakistan’s exports are continuously declining. Merchandise exports, in July-October 2016, dropped 6.31 percent to $6.431 billion, while services exports slid 24.6 percent to $1.613 billion in the four-month period.  

Remittances from overseas workers are also dried up, while foreign direct investment (FDI) has also been confined to China-related inflows. Remittances dipped 3.83 percent to $6.258 billion in July-October and FDI sharply fell 48.2 percent to $316.1 million.

“The government requires $15 billion in gross financing to meet current account deficit and external debt servicing in FY17,” Khan said.

The rise in debt servicing is expected to stoke pressure on the country’s foreign currency reserves in the medium-run due to maturity of 10-year Eurobonds worth $750 million and repayment of rescheduled Paris Club debt under the official development assistance during the current fiscal year.

Analysts said Pakistan is, however, all set to fulfill its repayment obligations to the IMF even during the next fiscal year of 2017/18.

Analysts said subdued foreign inflows would put pressure on dollar-rupee parity. 

“Appreciation of the real effective exchange rate on appreciating dollar will continue to erode exports competitiveness,” said an analyst.

Weakening exports and falling slowdown in remittances could have an adverse impact on the capital inflows. A faster-than-expected rise in oil prices would aggravate the external account position. “Together, these factors are to make debt servicing more difficult,” said an analyst. 

Pakistan’s external debt and liabilities amounted to $74.638 billion as at September-end 2016, almost a quarter of the country’s GDP.