Pakistan vulnerable to balance of payment pressures: UNCTD

By Mehtab Haider

ISLAMABAD: United Nations Conference on Trade and Development (UNCTD) has included Pakistan in the list of five countries around the globe that are facing a high degree of pressure on the balance of payment vulnerabilities including escalating public and publicly guaranteed (PPG) debt.

The UNCTD in its publication titled “Trade and Development Report Update: Tapering in Time of Conflict” says public sector external debt vulnerabilities are substantial, especially in low-income countries.

Moreover, according to the report, PPG external debts in developing countries represented 64.4 percent of the total stock of external debt in 2020 and this figure has increased to 76.2 percent in the case of low-income countries.

“High and middle-income developing countries with substantial nominal amounts of debt in combination with a large share of PPG and a high degree of external leverage relative to exports include, amongst others, Pakistan, Sri Lanka, Egypt, Angola and Colombia,” the report added.

It said short-term PPG debt servicing needs were concerning and developing countries were projected to require $310 billion to meet external public debt service requirements in 2022 – equivalent to 9.2 percent of the outstanding stock of external public debt at the end of 2020.

“Countries which appear vulnerable to a sudden stop due to a combination of large rollover pressures and a large debt service to export ratio include Pakistan, Mongolia, Sri Lanka, Egypt, and Angola. Three of these, Pakistan, Egypt, and Angola, already have long-term IMF programme in place,” the UNCTD report added.

The report says Pakistan is among the countries for which the bond yield rose sharply, while bond yields for developing countries have been on the rise since September 2021, adding, this increase is widespread and is a clear signal of tighter financial conditions.

Since the breakout of the conflict in Ukraine, the report says, yields have further increased for developing countries by 36 basis points, on average, with countries heavily dependent on food imports experiencing higher increases.

A total of 104 countries are net food importers they had a total of $1.4 trillion in external public debt at the end of 2020 and they face $153 billion in projected debt service payments in 2022, which can be jeopardised if international food prices continue to rise, it adds.

The report comments that war in Ukraine has caused immediate disruptions to global trade and is likely to have longer-term effects on its structure too. In the short-term, price effects and scarcity are spilling over onto economies more dependent on Ukrainian and Russian exports, especially of commodities, ranging from oil to minerals and food, the UNCTD report highlighted. Pakistan was among the countries that were 50 percent import-dependent upon Russian and Ukrainian wheat during 2018–2020, the report added. —