Largest external debt stocks: Pakistan among top 10 countries

ISLAMABAD: Pakistan is among the top 10 countries that possess the largest external debt stocks and became eligible for the Debt Service Suspension Initiative (DSSI) in the aftermath of the Covid-19 pandemic.

According to International Debt Statistics in 2022, released by the World Bank on Monday, there was a wide divergence in the rate at which external debt accumulated in individual DSSI-eligible countries, including the group’s largest borrowers.

The combined external debt stock of the 10 largest DSSI-eligible borrowers (Angola, Bangladesh, Ethiopia, Ghana, Kenya, Mongolia, Nigeria, Pakistan, Uzbekistan, and Zambia) was $509 billion at end-2020, 12 percent higher than the comparable figure at end-2019 and equivalent to 59 percent of the external debt obligations of all DSSI-eligible countries combined.

They also accounted for 65 percent of the end-2020 private non-guaranteed external debt of DSSI-eligible countries. The rate at which debt accumulated in individual countries varied considerably. For Pakistan, the 8 percent increase in external debt stocks reflected the inflow of budgetary support from official bilateral and multilateral creditors and rollover and new credit lines from commercial banks.

Net inflows from other private creditors rose 15 percent in 2020 to $14 billion but were highly concentrated and also reflected rollovers and extension of new credits by commercial bank loans to Pakistan in the context of the IMF program.

The FDI inflows to Pakistan fell moderately to $1.9 billion, 5 percent below the 2019 level, cushioned by continued investment in power generation and the telecom sector from British and Chinese investors.

In South Asia, debt to China has risen, from $4.7 billion in 2011 to $36.3 billion in 2020, and China is now the largest bilateral creditor to the Maldives, Pakistan, and Sri Lanka. According to the WB’s press statement, governments around the world responded to the COVID-19 pandemic with massive fiscal, monetary, and financial stimulus packages. While these measures were aimed at addressing the health emergency, cushioning the impact of the pandemic on the poor and vulnerable and putting countries on path to recovery, the resulting debt burden of the world’s low-income countries rose 12pc to a record $860 billion in 2020, according to a new World Bank report.

Even prior to the pandemic, many low- and middle-income countries were in a vulnerable position, with slowing economic growth and public and external debt at elevated levels. External debt stocks of low- and middle-income countries combined rose 5.3pc in 2020 to $8.7 trillion. According to the new International Debt Statistics 2022 report, an encompassing approach to managing debt is needed to help low- and middle-income countries assess and curtail risks and achieve sustainable debt levels.

“We need a comprehensive approach to the debt problem, including debt reduction, swifter restructuring and improved transparency,” said World Bank Group President David Malpass. “Sustainable debt levels are vital for economic recovery and poverty reduction.”

The deterioration in debt indicators was widespread and impacted countries in all regions. Across all low- and middle-income countries, the rise in external indebtedness outpaced Gross National Income (GNI) and export growth. Low- and middle-income countries’ external debt-to-GNI ratio (excluding China) rose to 42pc in 2020 from 37pc in 2019 while their debt-to-export ratio increased to 154pc in 2020 from 126pc in 2019.

In response to the unprecedented challenges posed by the pandemic and at the urging of the World Bank Group and the International Monetary Fund, in April 2020, the G20 launched the Debt Service Suspension Initiative (DSSI) to provide temporary liquidity support for low-income countries. The G-20 countries agreed to extend the deferral period through the end of 2021. In November 2020, the G20 agreed on a Common Framework for Debt Treatments beyond the DSSI, an initiative to restructure unsustainable debt situations and protracted financing gaps in DSSI-eligible countries.

Overall, in 2020, net inflows from multilateral creditors to low- and middle-income countries rose to $117 billion, the highest level in a decade. Net debt inflows of external public debt to low-income countries rose 25pc to $71 billion, also the highest level in a decade. Multilateral creditors, including the IMF, provided $42 billion in net inflows while bilateral creditors accounted for an additional $10 billion.