KARACHI: Mian Anjum Nisar President of Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has welcomed the extension of debt suspension initiative for developing countries by the G20, calling for long-term loans relief or their permanent termination to deal with the post-corona economic crunch.
He said though the global economy has begun a gradual recovery with the reopening of businesses, the recovery has not been smooth, as many of the poor countries are still spending more on debt payments than on life-saving public services.
He also supported Prime Minister Imran Khan's call to the international community to write off the debts of vulnerable countries, including Pakistan, as the coronavirus has shattered the economies of developing nations. The world community should think of some kind of a debt write-off for countries like Pakistan, as its major chunk of income is being spent on debt servicing, making it very vulnerable, he said.
He said that the central bank's foreign exchange reserves have declined stridently by over one billion dollars during last one month mainly owing to external debt servicing. "FPCCI welcomes the PM call for an outright cancellation of debt payments, who while addressing the UN session last month had stated that the poor countries suffered the most from coronavirus, therefore, these countries must be given debt relief by G20."
He said that Prime Minister Imran Khan was the first to highlight the issue as he called for a debt-write off. "We fully support the government which has already reached out to bilateral creditors to see if it can get some relief, as the country pays a large chunk of its tax money to foreign creditors." Last year, Pakistan paid $11.6 billion to lenders, which is almost as much as its central bank has in its reserves at the moment, he added.
"It is very welcome that both Pakistan along with other countries have collectively called for a moratorium on interest payments, as most of their debt consist of loans, which are borrowed to pay off previous loans, trapping them in a vicious debt cycle."
The FPCCI President said that country's reserves had been declining since Sept 2020 due to scheduled foreign debt payments. Although, during the last few weeks, the central bank also received some inflows from multilateral and bilateral agencies, however, those inflows were less than the outflows, because of which the foreign exchange reserves posted a sharp decline.
Quoting the SBP statistics, he said that the central bank's foreign exchange reserves have declined below $12 billion due to continued external debt payment, as its reserves were standing at $11.79 billion on Oct 9, 2020 against $12.82 billion on Sept 11, 2020, showing a fall of over $1 billion in a single month. During the week ended Sept 18, SBP's reserves were down by $ 119 million to $ 12.70 billion also due to debt repayments. Reserves held by SBP further declined by $ 342 million to $ 12.36 billion week ended Sept 25, 2020.
This decline was also attributed to the external debt payments by the government, amounting to $311 million. During the last week ended Oct 9, SBP made external debt repayment of $ 507 million, decreasing SBP reserves by $ 356 million to $ 11.79 billion.
He asked the world community to think of full debt write-off for countries like Pakistan that will help them to cope with the post- coronavirus sufferings. He observed that Pakistan lacks fiscal space and a proper health system. Therefore, the most appropriate response that G20 countries can give, at the moment, is abandoning the loan instead of a temporary relief, he said.
"There is no benefit of G20 countries' announcement of interim debt relief on principal and interest payments, as the suspension period for debt relief will remain only for few months and all debt service falling due in this period will be packaged into a new loan on which the repayments will again start after a short period, to be paid over three years." He asked them to extend grants to Pakistan instead of loans.
He said that the debt servicing would eat up more than two-fifth of country's total budget, as it is the top category in expenditures in FY21, over 41 percent of the federal budget's total outlay.
Copyright Business Recorder, 2020
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