Pakistan to repay $23bn foreign debt in next fiscal year

ISLAMABAD: Pakistan’s total foreign debt servicing is projected to climb up to $23 billion for the upcoming budget 2022-23 as repayment of commercial loans has now assumed a major chunk of the outstanding amount of $6 billion out of the total obligations.

In an alarming development, the country will have to repay on account of amortization and mark-up amount owed by the public sector alone to the tune of $49.23 billion over the next five years period from 2022-23 to 2026-27. 

For outgoing fiscal year 2021-22, it is projected that total debt servicing requirements both in shape of principal and markup would be standing at $12.4 billion for whole fiscal year and so far the government paid out $6.253 billion repayments in first eight months till Feb 2022.

Amid the rising external debt obligations, the Debt Office of the Ministry of Finance has practically become dysfunctional as its acting head Umar Zahid resigned last month after securing a new job abroad. The Ministry of Finance has given acting charge to its Joint Secretary Javed Iqbal but Debt Office was discharging no responsibility to manage the foreign debt in a professional manner.

Official document shows that the government will have to pay back the $3 billion Saudi Fund for Development (SFD) Time Deposit in the next financial year. However, the government has already requested the Kingdom of Saudi Arabia (KSA) for granting rollover of $3 billion deposits which the KSA agreed to in principle but its exact conditions would have to be worked out.

Amid the depleting foreign exchange reserves held by the State Bank of Pakistan standing at $9.7 billion in May 2022 against $20 billion in August 2021, which shows that the reserves have gone down by $10.3 billion, the rising foreign debt servicing clearly demonstrates that the country desperately requires major dollar injections for averting insolvency on external debt repayments and obligations.

Official data prepared by the Economic Affairs Division (EAD) disclosed that the debt servicing on account of public sector loans went up to $18.715 billion for the next budget 2022-23. The private sector loan repayment will be standing at $4.8 billion, so the total debt servicing requirements will surge to $23.5 billion for the next budget.

The official data shows that the debt servicing requirement stood at $18.715 billion for the public sector during the next financial year 2022-23 out of which the bilateral creditors would be repaid to the tune of $1.9 billion during the next fiscal year. The multilateral creditors' repayment on account of principal and mark-up has been estimated to consume $3.04 billion in the next fiscal year.

The international bond repayment will consume $1 billion in the next budget. The major chunk of repayment will be repaid on account of commercial loans and it will consume $6.032 billion in the next financial year. Now the government is exploring options to seek rollover on commercial loans. The government’s reliance on getting commercial loans increased manifold because it is considered one of the easiest ways of mustering up dollar inflows. As the country has turned into a desperate borrower, so the commercial banks might come up with increased demands for jacking up mark-up rates on requests of rolling over outstanding foreign loans obligation.

The government will have to repay $1.087 billion to the IMF in the coming fiscal year 2022-23. The public sector enterprises (PSEs) are obligated to pay back foreign loans on account of debt servicing of $670 million in the next financial year. The interest payments will consume foreign loans to the tune of $1.986 billion during the next financial year.

This totalled the amount of foreign debt servicing climbed to $18.715 billion for 2022-23. The outstanding repayments of private sector loans amounted to $4.8 billion.

The official data further shows that the debt servicing of foreign loans was projected to stand at $9.984 billion for 2023-24, $7.336 billion in 2024-25, and $7.694 billion in 2025-25, and $5.506 billion in 2026-27. The total outstanding foreign debt obligation would be standing at $49.235 billion over the next five years but it does not include the foreign debt owed by the private sector.

When contacted by the Ministry of Economic Affairs Division (EAD) spokesperson, the written reply stated as of March 2022, it has been projected that almost USD 21.9 billion will be repaid in FY 2022-23 (including principal and interest). However, almost USD 12 billion is scheduled to be rolled over/refinanced by Finance Division, which will bring effective debt repayments to USD 9.9 billion in FY2022-23. The Finance Division joint secretary, who is responsible to look after the Debt Office was sent questions about the possibility of rollover of commercial loans, but he did not reply.