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  • Dec 1st, 2018
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Undersecretary of the United States Treasury David Malpass informed a US Senate Foreign Relations Committee hearing that Pakistan is likely to pay off loans to the International Monetary Fund (IMF) before loans to China become due. This almost certainly refers to the Extended Fund Facility (EFF) repayments (interest and principal) as and when it becomes due.

According to the First Post-Programme Monitoring Report uploaded on the Fund website on 14 March 2018, the interest payments due by Pakistan to the IMF in 2018 were 93 million dollars and it was the first year when the principal amount of 150 million dollars was payable. In 2019, 85.1 million dollars would be due as interest payments with 420 million dollars due on account of principal, while in 2020, the interest payment due would be 70.7 million dollars and the principal due would be 660 million dollars. Repayments would continue and in 2023, the interest charges would be 31.8 million dollars while the principal due is 732.2 million dollars. In other words, repayments on the EFF would continue during the tenure of the Khan administration. The report adds that "repayments to the Fund are scheduled to start at SDR 243 million (including GRA charges and surcharges) in 2018 and peak at SDR 820 million dollars in 2021 with a gradually declining schedule until 2026." However, in the event that the country decides to go on yet another IMF programme, the Khan administration not having decided as yet whether it would seek another IMF bailout package with Finance Minister Asad Umar stating that 'we aren't in a hurry...we are covered even if it [the bailout package] delays for two months,' the repayment schedule of the new loan would consist of interest repayments less than around 30 million dollars a year starting in 2022-23. In other words, in the event that the government decides to seek a package then depending on its size the repayments to the Fund would be manageable.

The IMF report also indicates that Pakistan's total external debt servicing was 7.73 billion dollars in 2018 with total external debt of 93 billion dollars and projected 12.7 billion dollars as external debt servicing for the current year with total external debt rising to 103.3 billion dollars. The Fund projected total external debt at 144.9 billion dollars in 2023, the year of the next elections, and total servicing of 19.7 billion dollars. The Khan administration may well challenge this projection on the grounds that it is committed to reducing dependence on foreign loans, and that export revenue would rise as a consequence of fiscal and monetary incentives as well as due to the depreciating rupee (which would also discourage imports) raising the country's foreign exchange reserves.

Malpass acknowledged that "China is lending in many countries where the terms of the loans are simply not given and that gives China a lot of leverage within its programmes... they [Pakistan] haven't disclosed the terms of that debt... in general terms we think the maturity of the Chinese debt comes after the IMF would have been repaid." Thus given that neither China nor Pakistan shared details of the debt under the China Pakistan Economic Corridor the Fund projection of "continued scaling up of CPEC investments could accelerate the buildup of related external payment obligations" may be completely off the mark. The other factors that led to "staff's downside scenario, based on partial materialization of these risks, Pakistan's capacity to repay could deteriorate at a faster pace, with faster depletion of foreign exchange reserves and significant implications for economic growth" with the risks referred to, including deterioration of security conditions negatively impacting on investment confidence, lower growth in key trading partners as well as tightening global conditions or appreciation of the exchange rate. Again these risks may not materialize.

To conclude, Malpass' assessment appears to be more informed and up to date than the one made by the IMF mission over nine months ago when the PML-N was in power. However, the government needs to develop a strategy for reforms that is doable, and acknowledge that by simply rehashing the previous administration's policies and maintaining that it would succeed while its predecessors failed, may not be enough to convince foreign and local investors, multilaterals or bilaterals. The prevailing uncertainty is not due to the indecision to seek an IMF bailout package but to the failure to announce a viable strategy focused on stabilisation 100 days after assuming power.

Copyright Business Recorder, 2018

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