Debt servicing to corrode 40pc of FY21 budget

KARACHI: Debt servicing is expected to eat into the two-fifth of the country’s total budget during the current fiscal year of 2020/21, as it is the top category in expenditures, according to the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).

FPCCI on Friday called for long-term debt relief from G20 member countries or their permanent termination to help the country deal with the post-corona economic crunch.

The central bank’s foreign exchange reserves declined below $12 billion due to continued external debt payment and its reserves stood at $11.8 billion on October 9 as against $12.8 billion on September 11, showing a fall of over $1 billion in a single month.

“Though the global economy has begun a gradual recovery with the reopening of businesses, the recovery has not been smooth, as many of the poor countries are still spending more on debt payments than on life-saving public services,” FPCCI said in a statement.

“The world community should think of some kind of a debt write-off for countries like Pakistan, as its major chunk of income is being spent on debt servicing, making it very vulnerable.”

Last year, Pakistan paid $11.6 billion to lenders, which is almost as much as its central bank has in its reserves at the moment.

“It is very welcome that both Pakistan along with other countries have collectively called for a moratorium on interest payments, as most of their debt consist of loans, which are borrowed to pay off previous loans, trapping them in a vicious debt cycle,” said the FPCCI.

The country’s reserves have been declining since September due to scheduled foreign debt payments. Though during the last few weeks, the central bank also received some inflows from multilateral and bilateral agencies, those inflows were less than the

outflows, because of which the foreign exchange reserves posted a sharp decline.

The world community should think of full debt write-off for countries like Pakistan that will help them to cope with the post- coronavirus sufferings, said the FPCCI.

“Pakistan lacks fiscal space and a proper health system,” it said. “Therefore, the most appropriate response that G20 countries can give, at the moment, is abandoning the loan instead of a temporary relief.”

FPCCI said there is no benefit of G20 countries’ announcement of interim debt relief on principal and interest payments, as the suspension period for debt relief will remain only for few months and all debt service falling due in this period will be packaged into a new loan on which the repayments will again start after a short period, to be paid over three years.