FY2025 to FY29: External debt maturity estimated to be over $100bn

ISLAMABAD: Pakistan’s external debt maturity is estimated to be over $100 billion during fiscal year 2025 to fiscal year 2029 (five years), revealed the Finance Division.

Mohsin Mushtaq, Director General (Debt), informed the National Assembly Standing Committee on Finance that friendly countries would roll over $12.7 billion in the current fiscal year for Pakistan which includes; $5 billion from Saudi Arabia, $4 billion from China, $3 billion from UAE and $0.7 billion from Kuwait.

Sources revealed that during an in-camera session on International Monetary Fund (IMF) agenda, the committee was informed that Pakistan’s financial requirements are more than the current IMF bailout package.

External debt-to-GDP ratio hits 6-year low

Sources, while quoting Finance Minister Muhammad Aurangzeb, revealed that $7 billion would come from the IMF, while an additional $5 billion will need to be secured from commercial banks and other lenders.

The IMF has also been informed about assurances from friendly countries to roll over existing loans. Sources said these assurances convinced the IMF to schedule a meeting to further discuss Pakistan’s programme. Additionally, the IMF has been taken into confidence on reforms in Pakistan’s power sector.

The committee, which met with Syed Naveed Qamar, was informed that as of end June 2024, total public debt was recorded as Rs71.2 trillion, of which, Rs47.2 trillion was domestic debt and Rs24.1 trillion was external debt.

The budget for current fiscal year was prepared at the average policy rate of 17.2 percent which is expected to further come down, said the DG, adding that one percent decline in policy rate translate to around Rs320 billion relief in terms of domestic debt. He also forecast decline in prices of petroleum products and dollar rate against rupee.

Minister of State for Finance Ali Pervaiz Malik admitted that Pakistan’s external account position remains vulnerable despite the latest IMF programme. He further said that the IMF review will be held six months after receiving the first installment from the Fund.

The committee was also informed that the country would be required to arrange more than $100 billion in external financing over the five years to meet its debt obligations. This includes rolling over $12.7 billion in deposits from countries like China, Saudi Arabia, and the UAE.

The meeting was briefed that despite a recent increase in foreign exchange reserves to $9.5 billion, the external account remains fragile. Pakistan’s debt-to-GDP ratio has decreased from 75 percent to 67.2 percent, but total loans have surged to Rs71.24 trillion from Rs62.88 trillion in fiscal year 2023.

The committee was informed that Pakistan faces external payments of $18.83 billion this year, $9.23 billion in 2026, $8.71 billion in 2027, $7.68 billion in 2028, and $6.88 billion in 2029. This does not include the repayment of deposits from friendly countries.

Omar Ayub Khan said that a perfect storm is once again imminent while keeping in mind the debt risk. Due to the geopolitical situation, the dollar and oil prices may increase, he added. Hina Rabbani Khar, a member of the committee, noted that Pakistan’s economy remains in the ICU due to the absence of sustainable economic strategies.

Malik said that government is taking necessary steps for ensuring fiscal discipline and consolidation, stabilizing the economy and accelerating growth. This involves introducing structural reforms and stabilization measures such as broadening the tax base, reforming the Public Sector Enterprises (PSEs) and reducing the fiscal deficit.

All these measures are expected to bring stability leading to gradual reduction in the fiscal deficit over next few years and subsequently would reduce the country’s reliance on additional debt. Moving forward, the key goals of public debt management include:

i. Expanding the investor base and ensuring a well-functioning domestic debt capital market; (ii) Extending the maturity profile of the domestic and external debt portfolio in line with Medium-Term Debt Management Strategy to mitigate refinancing and interest rate risks; (iii) Engaging with domestic and international investors to improve coordination and information disclosure; (iv) Development of non-bank sector especially pension funds, insurance companies, and asset management companies and furthermore promote development of Shariah compliant debt market; (v) Completing actions associated with multilateral program loans, which are in pipeline and are projected to be disbursed over the medium-term; (vi) creating an enabling environment for savings through improvements in National Saving Schemes and also make these schemes more cost effective; (vii) mobilizing maximum available concessional external financing to boost the economy’s potential output by enhancing efficiency and productivity, simultaneously improving the country’s debt repayment capacity; and ensuring presence in the International Capital Markets (ICM) through issuance of Panda Bonds, Eurobonds, International Sukuk as well as other avenues like Environmental, Social, and Governance (ESG) bonds.

The committee members raised pertinent questions regarding lending countries, loan conditions, and the composition of debts.

The minister highlighted that major lenders included Saudi Arabia, Australia, China, and Russia, and informed the committee about the current status of foreign exchange reserves giving comfort and the government’s future debt management plan, underlining ongoing structural reforms and efforts to broaden the tax base.

While the committee appreciated certain measures, concerns were raised about recent tax reforms causing unrest among traders. It was resolved to hold a separate meeting aimed at fostering dialogue between traders and the government to address these issues.

The agenda item on mutual funds was deferred due to the absence of the chairman of the Securities and Exchange Commission, leading the committee to express displeasure over taking this important forum non-serious and stressed the importance of engagement of the Heads of the Institutions with the committee seriously.

The meeting concluded with a commitment to ongoing dialogue and collaboration between the government and stakeholders to enhance fiscal discipline and economic stability.

Copyright Business Recorder, 2024