Foreign debt ‘will rise to $103 billion’ by end of next fiscal year

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ISLAMABAD:

The International Monetary Fund revealed that Pakistan owes China $18.4 billion or one-fifth of its external public debt, which is not only $4 billion more than official figures, but is also the largest loan. highest of any country or financial institution.

In its new report on Pakistan, the IMF has also significantly raised its projections for Pakistan’s external public debt, total external debt and gross external financing needs. These adjustments were made to meet the gaping demands of the current account deficit, the IMF report showed.

The IMF report says Pakistan took an $18.4 billion loan from China – a figure $4 billion higher than the Ministry of Finance reported in the Economic Survey’s statistical supplement. of Pakistan 2020-21, released last month.

The IMF has made the $4 billion loan from China to stabilize foreign exchange reserves part of the external public debt from June 2021.

The amount of 18.4 billion dollars is equivalent to 20% of the external public debt reported by the IMF in its report. It is also the highest amount granted by a country or an institution. The World Bank’s outstanding debt to Pakistan stood at $18.4 billion at the end of the last fiscal year.

Western countries and international financial institutions are closely monitoring Pakistan’s financial relations with China, especially after the China-Pakistan Economic Corridor.

The IMF released the report at a time when Prime Minister Imran Khan is in China and is expected to ask for a bigger bailout package, including a $4 billion debt rollover and a $4 billion swap deal increase. currencies existing at 10 billion dollars.

The report further showed that the external public debt will climb to $103 billion by the end of the next fiscal year, an addition of almost $31 billion during the term of the incumbent government.
In 2017-2018, the external public debt stood at $72.5 billion and increased year on year due to faster growth of imports compared to exports.

Just 10 months ago, the IMF projected external public debt at $92.3 billion, which it has now adjusted upwards while posting a current account deficit and larger external financing needs.

The current account deficit that the IMF had posted at $5.4 billion at the end of the 5th review in March last year for the current fiscal year is now projected at $13 billion.

However, the new deficit figure also looks unrealistic, possibly even lower than the projections of the State Bank of Pakistan.

The money Pakistan now needs to pay foreign loans and the cost of imports is also shown at the high end of $30.4 billion. Gross financing needs are also revised upwards by 6.8 billion dollars by the IMF within 10 months.

Pakistan largely fills this gap through foreign borrowing, with the share of foreign direct investment estimated at just $2.3 billion in the current fiscal year.

The IMF said the forecast trajectory for gross financing needs had been revised upwards due to a greater-than-expected reliance on short-term domestic issuance since late March 2021. But it said the public debt and gross financing needs to gross domestic product are expected to fall sharply in the medium term.

The IMF said Pakistan had engaged with external creditors to secure financing to meet the program’s debt sustainability targets.

He added that China had maintained its exposure by rolling over and increasing the $4.6 billion swap as well as rolling over maturing commercial loans, albeit some with shorter maturities.

China also provided an additional loan of $1 billion in July 2020 through the State Administration of Foreign Exchange, increasing its deposits to $4 billion.

Recently, Pakistan also obtained a $3 billion deposit from the central bank and a deferred oil financing facility from Saudi Arabia.

The global lender said macro-fiscal shocks continue to pose a medium-term risk to Pakistan’s debt sustainability, despite an improving debt profile.

The most extreme shock to medium-term debt dynamics would emanate from a large and long-lasting shock to real interest rates, he added.
Contingent liabilities of loss-making public enterprises – to the extent that they are not covered by government guarantees – continue to pose additional risks to debt sustainability, he added.

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