Pakistan spent $2.7 billion on external debt servicing in 1HFY16

The country spent some $2.7 billion on external debt servicing during the first half of the current fiscal year (FY16). According to bankers, the overall external debt servicing is on decline for the last two years mainly owing to lower repayments to the International Monetary Fund (IMF). On the contrary, the servicing of the government debt remained higher due to rise in the repayment to multilateral donors and maturing of commercial loans during the period under review, they opined.
They were also of the view that the external debt repayments in the second half of the current fiscal year are expected to be higher than the first half, mainly in the wake of maturity of 10-year Eurobonds, issued in FY06. According to State Bank of Pakistan (SBP), under the external debt servicing, a major amount (almost 70 per cent) has been paid under the head of principal amount, while remaining repayments have been made under the interest head.
"Out of total external debt servicing $2.72 billion made in July-December of FY16, some $2.082bn has been paid as principal amount and $641 million as interest. This debt servicing excludes principle repayment of short-term borrowing by schedule banks from banks aboard." During the first quarter (July-Sep) of this fiscal year, an amount of $1.335bn, including $1.09bn principal and $246 million were paid on account of interest. Similarly, some $1.387bn, including $992m as principal and $395m as interest were paid on external debt during the second quarter (Oct-Dec) of FY16.
In addition, during the period under review, some $2.315bn has been repaid under public debt, $170m as Public Sector Enterprises (PSEs) debt servicing and $231 on account of private sector debt servicing. Bankers said that the country's liquid foreign exchange reserves reached $20.7bn in the first week of March and higher repayment might reduce the reserves in the second half.
The country is required to generate more foreign exchange reserves in the future through home remittances, foreign direct investment (FDI) and higher exports to finance external debt servicing burden, they added. The State Bank of Pakistan in its recent report has also indicated that external debt servicing in coming years will increase due to repayment of IMF loan. Accordingly, the SBP has urged for stability in exports and FDI over a longer period of time.