IMF expects Pakistan’s external debt to reach $144 billion by 2023

ISLAMABAD: The International Monetary Fund (IMF) has projected Pakistan’s external debt and liabilities could peak to $144 billion in the next five years from $93 billion in the current financial year of 2018.

The IMF also estimated that the country’s foreign currency reserves would continue to decline and could touch $7.075 billion by 2023 from $12.09 billion held by the State Bank of Pakistan.

More alarmingly, the total external debt servicing would reach $19.7 billion by 2023 against $7.739 billion in the FY 2018. The foreign debt servicing is projected to rise from $7.7 billion to $19.7 billion, indicating immense pressure on the country’s external accounts.

The first Post-Program Monitoring report stated that existing trends could take a further toll on foreign currency reserves and could weaken the country’s capacity to repay the IMF’s debts. At present, reserves amount to almost twice of Pakistan’s outstanding Fund repurchases of SDR 4.4 billion. Repayments to the fund are scheduled to start at SDR 243 million, including GRA (General Resources Account) charges and surcharges in 2018 and they will peak at SDR 820 million in 2021 with a gradually declining schedule until 2026.

While these obligations do not exceed 6 percent of total external debt service in any year, their share in gross reserves is expected to rise significantly in the medium term, reaching close to 15 percent in 2022.

The IMF said the country’s fiscal risks will likely remain high. “Risks to public debt sustainability have increased since the completion of the EFF last program funded by the IMF,” it added. Public and publicly-guaranteed debt is expected to remain elevated, marginally declining from 70 percent of GDP in the FY 2016/17 to 68 percent of GDP by FY 2022/23.

Alongside, gross fiscal financing needs will likely exceed 30 percent of GDP from 2018/19 onward, in part reflecting increased debt service obligations. The fund said mobilising affordable external financing could become more challenging in the period ahead.

“The Pakistani authorities’ success with contracting external borrowing (over $10 billion in FY 2016/17 and more than $6 billion so far in FY 2017/18 ) has been instrumental in softening the impact of the rising external imbalances on foreign exchange reserves,” it said.

“While the level of external debt (27.4 percent of GDP in FY 2016/17) has remained moderate, continued mobilization of external financing at favorable rates could become more challenging in the period ahead, against the background of rising international interest rates and increasing financing needs are expected to continue to mount in the medium term.”

The elevated current account deficit and rising external debt service, in part driven by CPEC-related outflows (loan repayments and profit repatriation), are expected to lead to higher external financing needs, which are expected to rise from $21.5 billion (7.1 percent of GDP) in FY 2016/17 to around $45 billion by FY 2022/23 (9.9 percent of GDP), the IMF’s report concluded.