IMF projects external debt at $113bln till June-end

ISLAMABAD: International Monetary Fund (IMF) projected Pakistan’s external debt to reach $113 billion by this fiscal year-end and overall public debt, in terms of GDP, on downward trend in three years with its executive on Tuesday seeing the figures at sustainable levels.

IMF Resident Chief in Pakistan Teresa Daban Sanchez said fiscal consolidation is aimed at keeping the debt at a sustainable level. “The debt continues to be sustainable as the debt sustainability analysis done by the IMF staff was accomplished with minute details,” she said, addressing a seminar organised by Sustainable Development Policy Institute (SDPI).

Sanchez said the IMF loan program in the country has three key pillars, including fiscal consolidation to keep debt at sustainable levels, placing market-determined and flexible exchange rate and protecting vulnerable through social safety nets.

IMF executive said the inflation was considered heavy tax and burden for the poor. Inflationary expectations are still moderate. Although inflationary pressure has started receding, but it is still on higher side as the IMF projected inflation in the range of 11.8 percent for the current fiscal year. Upcoming review mission of the IMF would hold detailed deliberations on sustainable development goals (SDGs) and would put number to ascertain that how much resources Pakistan requires to achieve the desired goals under SDGs targets. “The IMF program is aimed at gains achieved as permanent so the program targets have been modified to ensure stability and then move towards higher growth trajectory,” she said.

Sanchez said general sales tax harmonisation is must for Pakistan because lack of harmonisation is increasing cost of doing business in Pakistan.

The IMF debt projection proved incorrect within three months after signing of $6 billion loan program with Pakistan as the public debt (including guarantees) is now estimated at 87.8 percent of GDP at end-FY2019 compared with the program approval of 78.5 percent of GDP. This was because of the larger fiscal deficit, a decision to increase cash deposits to provide a financing cushion against potentially unfavourable market conditions, and a more depreciated exchange rate.

IMF’s debt sustainability analysis on Pakistan said public debt for FY2019 turned higher than projected, but public debt continues to be projected to decline as broadly envisaged at the time of program approval. The debt trajectory was envisaged to be steadily declining due to favourable exchange rate developments, while continuing to be supported by fiscal consolidation.

As a result, total debt was projected to decline to just below 70 percent of GDP by end FY2024 compared with 67.1 percent of GDP at the time of program approval earlier this year. The country’s gross financing needs edged up to 19.4 percent from 16 percent at the program approval, reflecting the higher deficit and gross financing needs in FY2019 but continued to be on a clear downward path.

The IMF said the successful re-profiling of government debt held by the State Bank of Pakistan (SBP) into longer-term instruments supported debt sustainability.

“With SBP financing no longer available, the government has been successful in securing ample bank financing, including at longer maturities and with some foreign participation,” the IMF said in the document. “Contingent liabilities from loss-making SOEs (state-owned enterprises), to the extent not covered by government guarantees, continue to represent additional fiscal risks (about 2 percent of GDP).”

IMF said it would aim to strengthen the transparency related to other types of contingent liabilities, such as in the context of power generation projects.

“The Pakistani authorities have remained engaged with external creditors to secure financing consistent with the program debt sustainability objectives,” the Fund said. “The oil facility with Saudi Arabia (worth $3.2 billion) was activated in August and is providing support to the balance of payments.” Pakistan secured the rollover of matured obligations worth $700 million to China Development Bank in September. The country engaged with Saudi Arabia, which refinanced balance of payments support loans ($1 billion) that matured in November. Official lenders are also advancing their disbursement plans, the IMF added.