World Bank puts country’s external debt stock by end-2021 at $130.433bn

ISLAMABAD: The World Bank has estimated Pakistan’s total external debt stocks at $130.433 billion by end-2021 compared to $115.695 billion by end-2020.

The World Bank in its latest report, “International Debt Report 2022, Updated International Debt Statistics”, stated that total external debt stocks stood at $130.433 billion by 2021 including the use of IMF credit of $10.841 billion against $8.902 billion in 2020, long-term external debt of $110.610 billion in 2021 against $99.563 billion in 2020.

Short-term external debt stood at $8.983 billion in 2021 compared to $7.230 billion in 2020.

According to the data, external debt stocks to export was 360 per cent in 2021 compared to 417 per cent in 2020, external debt stocks to GNI was 38 per cent in 2021 compared to 39 per cent in 2020, debt service to exports was 34 per cent in 2021 compared to 36 per cent in 2020, short term to external debt stocks was seven per cent in 2021 compared to six percent in 2020, multilateral to external debt stocks was 27 per cent in 2021 compared to 29 per cent in 2020, gross national income (GNI) was 341,730 in 2021 compared to 294,847 in 2020.

The report noted that the deferral process requires a detailed reconciliation between debtor and creditor records and has been administratively costly. Loans to which the deferral applies and the precise amount of debt service to be deferred must be identified, and a legal document to revise the contractual payment terms of the original loan(s) is created.

This is a time-consuming process, as shown by a statement from the Pakistan Ministry of Economic Affairs in June 2022, when it announced the signing of two more deferral agreements. One agreement, with Japan, covered deferrals related to the first half of 2021; the other agreement, with Switzerland, covered deferrals related to the second half of 2021. These new agreements brought the total number of deferral agreements signed by Pakistan to 93 with 21 different creditors. During the protracted DSSI implementation process, participating countries reporting to the World Bank DRS have taken various approaches in managing their public debt portfolio. For example, some countries reported debt service potentially subject to deferral as paid to avoid any unintended consequences of payment arrears, in the expectation of reimbursement upon signature of the deferral agreement.

Other countries recorded “technical arrears” or reported estimated amounts of debt service deferred pending an agreement with the creditor on the actual amount.

The Bank stated that the external debt service payments on public and publicly guaranteed debt by the world’s poorest countries are expected to surge by 35 per cent from 2021 to over $62 billion in 2022.

Debt service payments take away scarce fiscal resources from health, education, social assistance, and infrastructure investment.

Payments scheduled for 2023 and 2024 are likely to remain elevated because of high-interest rates, maturing principal, and the compounding of interest on Debt Service Suspension Initiative deferrals. The increased liquidity pressures in poor countries go hand in hand with solvency challenges, causing a debt overhang that is unsustainable for dozens of countries. Nearly 60 per cent of countries subject to the Joint World Bank–International Monetary Fund Debt Sustainability Framework for Low-Income Countries are at high risk of debt distress or already experiencing it.

In 2021, the debt stock of low- and middle-income countries rose by 5.6 per cent to US$9 trillion, of which International Development Association (IDA) countries owe nearly US$1 trillion. Although on average countries’ public and publicly guaranteed external debt as a share of gross national income returned to pre-pandemic levels, such was not the case for IDA countries; in those countries, ratios of debt to gross national income remained well above their levels before the pandemic. With the 2022growth outlook cut in half, interest rates much higher, and many currencies depreciating, the burden of debt is likely to increase further.

Copyright Business Recorder, 2022