Govt makes $2.346 bln external debt servicing in Q3

KARACHI: Pakistan’s external debt servicing fell 3.41 percent to $2.346 billion in the March end quarter on low interest payments on foreign loans, the central bank’s data showed on Thursday.

Interest payments stood at $645 million in the third quarter of FY19 compared with $848 million in the second quarter of the last fiscal year. However, principal payments rose to $1.701 billion from $1.581 billion.

The external debt servicing had always been a much concern for the economy due to a steep rise in the volume of foreign loans since 2008, which was largely dominated by the International Monetary Fund. The country’s external debt and liabilities (EDL) increased to $105.8 billion at the end of March 2019. EDL include all foreign currency debt contracted by the public and private sector as well as foreign exchange liabilities of the State Bank of Pakistan.

The part of EDL which falls under government domain is debt which is serviced out of consolidated fund and owed to the IMF. Whereas, remaining includes liabilities of central bank, debt of public sector entities, private sector and banks.

The multilateral and bilateral loans are contracted at concessional terms (low cost and longer tenor) and are primarily utilized to remove structural growth anomalies and promote reform in the areas of energy, taxation, business, trade and education. These development loans are, thus, deployed to the increase the total output of the country and in-turn the debt repayment capacity.

The country is scheduled to repay a total of $10 billion in the current fiscal year. The SBP’s foreign exchange reserves were at $7.282 billion as of June 21. Analyst said financial assistance from the IMF and other international creditors will improve the country’s ability to service its large external debt.

External debt as percentage of gross domestic product is likely to touch all time high of 32 percent in the current fiscal year from the estimated f 26.5 percent in FY19, as per the projections, which suggest additional external borrowings of $12-14 billion in FY20 to meet IMF’s gross reserves level and gross financing gap.