Pakistan pays $1.535 billion in external debt servicing

KARACHI: Pakistan’s external debt servicing increased by $76 million, or 5.20 percent, in the second quarter of the current fiscal year, a recent data of the State Bank of Pakistan (SBP) showed, putting the balance of payments position of the country at risk.
The country paid $1.535 billion as debt servicing to the external creditors from October to December 2014/15, including $1.014 billion as principal amount and $325 million in lieu of interest payment.
Servicing of external debt amounted to $1.459 billion during July to September FY15.
The external debt and liabilities stood at $65.6 billion during FY14.
Debt servicing was mainly on account of public guaranteed debt. These loans were obtained from multilateral and bilateral donors. However, the remaining payment was made to the International Monetary Fund (IMF).
Economists said external debt servicing had always been a much concern for the economy due to an unprecedented rise in the volume of foreign loans since 2008, which was largely dominated by the IMF.
Pakistan paid $874 million in debt servicing to the IMF during the first half of the current fiscal year.
The central bank’s figures showed that external debt serving reached the level of $6.996 billion in FY14.
“There is less pressure on the foreign exchange earnings of the country in the short-term, but the debt serving burden of the country will rise in the next five years,” said Dr Hafiz A Pasha, ex-finance minister.
The maturity of 10-year Eurobonds issued in FY06 ($500 million) and FY07 ($750 million) is due in FY16 and FY17. Moreover, the repayment of rescheduled Paris Club debt under Official Development Assistance will start from FY17, while servicing the Extended Fund Facility programme with the IMF will begin in FY18; and the five-year Eurobond issued in April 2014 and raised $1 billion will mature in FY19.
Economists said external debt obligations, which will be started from FY16, are likely to endanger Pakistan’s debt edifice, stoking pressure on the country’s foreign exchange earnings in the medium-term.
“The outstanding external debt continues to rise in absolute terms even though a large amount of debt to the IMF had to be repaid in the last two years or so,” said Dr Muhammad Yaqub, former governor of the SBP.
“Most of Pakistan’s external debt is to international financial institutions or bilateral creditors and their terms of servicing are already given and will not be affected by movement of interest rates in the world markets,” Dr Yaqub said.
“Moreover, commercial borrowing that the government has made recently from the international markets is at a rate higher than (that) paid to international institutions and bilateral creditors.”
He added: “Given these factors, there is every reason to project that the absolute level of foreign debt servicing will go up in the period ahead.”
The foreign exchange reserves of the central bank rose to $11.207 billion during the week ended February 27 but increasing debt obligations will pose a risk to the sustainability of the foreign exchange reserves.
Pakistan had a current account deficit of $2.37 billion during the first seven months of the current fiscal year.
When a country runs a current account deficit [borrow more], it is building up liabilities to international creditors, which are financed by flows in the capital and financial account.
Foreign direct investment remained stagnant at $545 million in July-January FY15.
Trade deficit rose to $13.105 billion due to sluggish exports and nominal increase in imports.