Foreign debt, liabilities balloon to $99.1bln till December-end

KARACHI: Pakistan’s total external debt and liabilities increased to $99.1 billion at the end of December 2018 from $95.3 billion in June, the central bank’s data revealed on Friday, showing that the current government added around $4 billion to the foreign borrowings since it took office in August last year.

At the end of September, foreign debt stood at $96.7 billion, according to the State Bank of Pakistan (SBP).

The latest debt and liabilities were equivalent to 35.8 percent of gross domestic product as of the end of December last year.

Analysts forecast foreign debt and liabilities to increase to $105 to 106 billion by the end of the current fiscal year. Moreover, the gross external financing requirement is expected to be around $22 billion during the fiscal year of 2018/19. They said Pakistan is likely to secure a bailout package soon from the International Monetary Fund (IMF) to meet external financing requirements.

The rise in the external debt and liabilities was driven by government’s borrowing from bilateral sources. The government relied on commercial and bilateral sources, especially China to finance the current account deficit during the first half.

The government took $11.3 billion in loans from various countries as of December-end compared with $8.6 billion till June-end. Loans from multilateral donors, however, fell to $27.6 billion from $28.1 billion. Public external debt surged to $78.4 billion from $75.3 billion. Long-term foreign debt stood at $64.5 billion as opposed to $62.5 billion. Friendly countries, such as Saudi Arabia and UAE, pledged $12 billion to help ease pressures on the balance of payments. Saudi-baked Islamic Development Bank is set to lend Pakistan oil worth $4.5 billion.

Saudi Arabia and UAE aggregately extended four billion dollars to Pakistan as part of aid package since November last year. The inflows led to increase in foreign exchange reserves of the central bank. The reserves held by the State Bank of Pakistan increased $13 million to $8.205 billion as of February 8, 2019.

Analysts said around Rs300 billion is estimated to be added to foreign debt due to depreciation in local currency. Exchange rate depreciation has taken major toll on borrowing. Rupee, one of the worst-performing Asian currencies, depreciated almost 30 percent since December 2017.

Ratings agency Fitch said sovereign debt service obligations over the next three years would amount to $7-9 billion per year, including a $1 billion Eurobond repayment due in April next year.

“A successful conclusion of the ongoing negotiations with the IMF could help stabilise external finances, but the program would then face significant implementation risk,” the agency said in a report. The ratings agency projected high gross financing needs with an expected narrowing of the current account deficit offset by higher external debt service payments relative to the last year.

“External debt servicing will stay high throughout the next decade, with CPEC- (China-Pakistan Economic Corridor) related outflows set to begin in the early 2020s,” it said.