External debt, liabilities climb to $122.1bln in FY21

KARACHI: Pakistan’s foreign debt and liabilities (outstanding) jumped by $9.18 billion or 8.12 percent to $122.1 billion at the end of June last fiscal year, the central bank data showed on Monday.

The external debt and liabilities (EDL) were $113 billion as of June 30, 2020. The foreign debt and liabilities were 40.3 percent of the country’s gross domestic product in fiscal 2020/21, lower than the prior fiscal year’s 45.7 percent.

The EDL continues to go up due to the government’s reliance on foreign borrowings to repay its outstanding external loans, finance the current account deficit, and to build its forex reserves.

The State Bank of Pakistan’s data showed $27 billion were added to the EDL in the past three years. When the Pakistan Tehreek-e-Insaf (PTI) government came into power in 2018 foreign debt was $95 billion.

During Pakistan Muslim League-Nawaz (PML-N) tenure, the external debt rose by $34 billion to $61 billion when it came returned to power for the third time in 2013. This debt and liabilities saw an expansion of $15 billion during Pakistan’s Peoples’ Party (PPP) rule. The debt was recorded at $46 billion by the end of June 2008.

Foreign debt is dominated by long-term loans from international financial institutions, multilateral agencies, and the Paris Club. The share of sovereign bonds in the debt is relatively low. The expansion in the EDL originated from both the public and the private sectors. A large increase in the external debt was sourced through disbursements from multilateral donors.

As of June 30, 2021, the public external debt was worth $95.177 billion, compared with $87.885 billion a year ago. The government’s external debt rose to $79.031 billion in the year to end June from $70.314 billion a year earlier.

Long-term foreign debt stood at $78.173 billion at the end of June, up from $68.773 billion at the end of the previous year. Debt accumulated through multilateral sources rose to $33.836 billion from $30.898 billion at the end of June 2020.

Loans from bilateral sources stood at $14.821 billion, compared with $13.428 billion in the previous year. Debt accumulated through the IMF was $7.384 billion from $7.680 billion. Loan disbursements from the commercial, multilateral and bilateral sources are rising to repay maturing foreign commercial loans. These inflows are also used for budgetary support and development projects. Pakistan re-entered the international capital market after a gap of more than three years. Debt taken through Euro Sukuk bonds rose to $7.800 billion from $5.300 billion. Foreign investment in long-term government securities also saw an uptick. Debt through Naya Pakistan Certificates stood at $767 million.

The servicing of external debt fell by eight percent to $13.424 billion in FY2021. The government repaid $11.186 billion in principal and paid $2.237 billion in interest, the data showed. It repaid $11.349 billion in principal and paid $3.229 billion in interest the prior year. In the past three years, the government paid a whopping $39.591 billion as principal and interest on foreign loans. Analysts expect the external borrowing to remain on an upward trajectory this fiscal year.

“According to SBP’s last analyst briefing, Pakistan is expected to have gross external financing needs of about $20 billion in FY22. This includes debt servicing, current account deficit ie expected to be 2-3 percent of GDP, etc,” said Mustafa Mustansir, the head of research at Taurus Securities Limited.

SBP also shared that sufficient financing was available to meet this need also, he added. “So we may see these borrowings increase further and some pressure on the rupee also.” Most of the inflows the SBP is anticipating to come in will be in the form of borrowings. Inflows would include FDI, loans from private creditors, official creditors (non-IMF), the IMF, and additional Special Drawing Rights (SDR) allocation. FDI is expected to be a very small portion of it, Mustansir said. Last week, Pakistan received $2.75 billion from the IMF under its new SDR allocation, which boosted the SBP’s foreign exchange reserves to an all-time high of $20 billion.