Pakistan to repay 8.638 crore rupees worth of foreign loans by June as vulnerabilities mount

• If Pakistan does not resume the IMF program by the end of January, a full-blown crisis will be knocking on its doors, the report said.
• In rupee terms, the amount of foreign loan repayments has increased by 399% in the last four years.
• Pakistan’s foreign repayments total US$12.3 billion in the current fiscal year.

ISLAMABAD: Pakistan to repay US$8.638 billion in foreign loans in the second half (December-June) of fiscal year 2021-22. The news reported on Friday, citing official data.

According to the data, this amount for foreign loan repayments in rupees has increased by 399% over the past four years.

It totaled Rs. 286.6 billion in 2017-18 and is now estimated at Rs. 1,427.5 billion. Meanwhile, Pakistan had to repay over $12.4 billion in foreign loans – both the principal amount and the premium.

If Pakistan does not resume the International Monetary Fund (IMF) program by late January or early February, given the ongoing external sector situation, a full-blown crisis will be knocking on the doors of the already struggling economy by the end of the current fiscal year.

Pakistan’s foreign exchange reserves held by the State Bank of Pakistan (SBP) as of December 31, 2021 totaled US$17.6 billion, despite US$3 billion inflows from Saudi Arabia, over US$2 billion from the IMF and 1bn Jul-Dec) due to the widening current account deficit (CAD).

According to the available official data with The news, the country paid out about $3.78 billion in capital and foreign loan markup for the first five months (July-November) of the current fiscal year.

It is worth mentioning here that if the IMF program is not revived by late January or early February 2022, it will be difficult for Pakistan to avoid depleting the foreign exchange reserves held by the central bank.

Questions were sent to the Economic Department (EAD) spokesman for confirmation, who confirmed that Pakistan’s foreign repayments totaled $12.3 billion in the current fiscal year, including principal and interest repayments.

“Numbers paint a frightening picture”

Former Finance Minister Dr. Highlighting the issue of increasing external sector vulnerability, Hafiz said, “The situation has become difficult as the country’s external financing needs have increased to at least $30 billion in the short term.”

He went on to say that the numbers paint a “frightening picture”. Pasha shared the example of Sri Lanka, where the country’s foreign exchange reserves were nearly $1 billion but its debt obligations exceeded $7-8 billion.

Pasha explained that in his statement, Sri Lanka’s foreign minister refused to go to the IMF and indicated that they would turn to China to help them repay their debt obligations, in exchange for one of theirs Ports handed over to Beijing.

The former minister said that the foreign debt has become a “monster” as the country has to repay over $8 billion in the second half of the current fiscal year.

He believed that debt repayment would escalate further in the next fiscal year 2022-23 at precisely a time when the country would be caught in campaign fever after a five-year term by the incumbent government regime.

Pasha predicted that the current account deficit could reach $15-16 billion for the current fiscal year. He warned that in such a scenario foreign exchange reserves could begin to shrink, raising the risk of a full-blown balance of payments crisis looming on the horizon of the Pakistani economy.

Official data available with The news revealed that in the first five months (July-November) of the current fiscal year, Pakistan has repaid the capital and premium of US$3.7 billion on the account of foreign loans, of which US$974 million has been repaid to multilateral donors , $34 million to bilateral creditors, $2.74 billion to commercial banks, international bonds and the IMF.

In the second half of the current fiscal year, Pakistan is expected to repay both the principal amount and the premium of US$8.638 billion, of which US$1.860 billion to multilateral donors, US$1.310 billion to bilateral donors and a large part $5.353 billion to be repaid to commercial banks, bonds/sukuk and the IMF.

Foreign loan repayments under Public Enterprise Guarantees (PSEs) are forecast to reach US$114 million in the second half of the current fiscal year, bringing total foreign debt outstanding to US$8.63 billion.

Further research conducted by this writer also revealed that the repayments of foreign loans denominated in rupees have escalated in recent years amounting to Rs 286.6 billion in FY 2017-18 than that of PML-N led government after the completion of five ended years.

Currently, overseas loan repayment is estimated at Rs 1,427.5 crore or 399%. The repayment of foreign loans in FY2020-21 was Rs 1,228.8 crore, Rs 1,095.2 crore in FY20 and Rs 601.7 crore in FY19, Rs 286 crore in FY18 and Rs 443.6 crore in FY17.

Repayments of foreign loan obligations totaled Rs. 215.9 billion in FY2012-13 when the PPP-led government ended its five-year term. Foreign loan repayments totaled Rs 132.4 crore in FY 2009-10.

Comparing the past 12 years, starting with fiscal year 2009-10 to 2021-22, the repayment of foreign loans escalated from Rs 132.4 crore in 2009-10 to Rs 1,427.5 crore in 2021-22. It has ascended at supersonic speeds and has increased weak points on the outer forward manifold.

“Pakistani authorities must remain vigilant”

When contacted, Dr. Khaqan Najeeb, former director-general of the Ministry of Finance’s Economic Reform Unit (ERU), said the Pakistani authorities must remain vigilant about the country’s external financing needs.

This requirement can be broadly understood as the country’s short-, medium- and long-term debt maturing during a fiscal year plus the current account deficit.

External financing needs for Pakistan are expected to exceed US$27 billion for FY22. This comes after he assumed China’s $4 billion vault deposit would be rolled over, he added.

The authorities must ensure that the planned external financing sources are more than sufficient to meet these high external financing needs in FY22.

dr Khaqan highlighted some concerns based on the analysis of the data for the first half of FY22. Debt repayment on government external loans in the first six months is just $3.7 billion.

Annual liability is estimated at $12.4 billion. Therefore, the much larger $8.7 billion repayment in the second half of FY22 may put pressure on the country’s balance of payments.

He said that given external needs, Pakistan’s ability to complete the IMF’s sixth review is therefore crucial to securing the $1 billion and gaining access to other creditors.

IMF approval can ensure continued access to concessional multilateral financing, private creditor money and the country’s ability to issue bonds in international markets.

In addition, ensuring a budgeted amount of foreign direct investment is also crucial. We must remember that all of this money is necessary to meet the $27 billion needs.

While commenting on the current account deficit, he said it has grown larger than originally expected. While the authorities had initial estimates of 3% of GDP, the current account deficit is now likely to be close to 5% of GDP in FY22.

This will be the largest deficit after fiscal 2018. The current account deficit trend remained elevated in the first five months of FY22 averaging over US$1.4 billion on a monthly basis.

It is hoped that the sharp adjustment in the rupee, along with other containment measures taken by the authorities, will be able to lower the widening deficit in the coming months.

He pointed to three other problem areas for the balance of payments. In recent months, remittances to Pakistan started falling as the global lockdown eased.

Brent (oil) prices have recovered above $84 a barrel with some analysts pointing to a bullish trend. The rising demand for food and related items keeps the import bill rising, such as the recent import of 50,000 tons of urea.

The urea shortage in the country could adversely affect the Rabi crop. All of these trends could put pressure on the country’s balance of payments and require close government monitoring and timely remedial action where necessary, he concluded.