The country's external debt servicing continued to surge and posted a 16 percent increase in FY14 mainly due to heavy repayments to International Monetary Fund (IMF). According to State Bank of Pakistan (SBP), the country spent some $6.82 billion on external debt servicing (including principal and interest) during the last fiscal year compared to $5.98 billion in FY13, depicting an increase of $843 million.
In addition to IMF, higher repayments to China, IDB and Saudi Arabia caused a massive increase in debt servicing. The repayments to China, IDB and Saudi Arabia during FY14 stood at $ 262.9 million, $ 195.1 million and $ 172.6 million, respectively, compared to $ 185 million, $ 22.8 million and $ 80.2 million in FY13.
The detailed analysis revealed that major repayment has been made on account of principal amount and with $8.69 million increase; some $5.91 billion were paid on account of principal in FY14 as against $5 billion in FY13. Similarly, interest payment stood at $906 million, down 26 million.
During FY14, debt servicing to China increased as the settlement of a military loan fell due last year, while the repayment of $200 million of Saudi Fund for Development and loans for fertilizer imports also started since last fiscal year. In addition, the settlement of a short-term loan from Islamic Development Bank (IDB), which was rolled over in December 2011, also added to the servicing pressure in FY14. Although, the country has already made the bulk of repayments of its IMF loan, servicing of $ 1.3 billion is scheduled in this fiscal year (FY15). SBP, in its annual report for FY14, also indicated that the increase in debt servicing is likely to stoke pressure on the country's foreign exchange reserves in the medium term, due to a number of factors, which include maturity of 10-year Eurobonds issued in FY06 ($ 500 million) and FY07 ($ 750 million) is due in FY16 and FY17, secondly repayment of rescheduled Paris Club debt under Official Development Assistance (ODA) will start from FY17. In addition servicing of Extended Fund Facility (EFF) programme with the IMF will begin in FY18 and the 5-year Eurobond issued in April 2014 amounting to $ 1 billion will mature in FY19.
In the past few years, while external debt repayments have seen expansion since FY12 due to heavy repayments to the IMF, while, the growth in foreign exchange earnings of the country, particularly exports, has largely remained modest. Since the country has already made large repayments to IMF in FY14, the repayment pressure is likely to ease in FY15 and FY16. However, this will resurface in FY17 onwards, with the onset of repayments of rescheduled Paris Club debt, Eurobonds and the current EFF with the IMF.
According to SBP, the recent increase in Pakistan's external debt has renewed concerns about the sustainability of external debt and to evaluate this issue, therefore SBP analysed the solvency and liquidity indicators of external debt sustainability, which measure the long-term and short-term ability of a country to make debt repayments and the central bank's analysis shows that almost all indicators of external debt sustainability witnessed some erosion in FY14. More Specifically: (i) debt bearing capacity of Pakistan, measured in terms of external debt and liabilities (EDL)-to-GDP, witnessed a marginal increase in FY14, after posting a consistent improvement in the past three years; (ii) external debt servicing (EDS)-to-foreign exchange earnings (FEE) ratio also weakened, primarily because of bulk repayments to the IMF; and (iii) the share of short-term debt (STD) in overall EDL increased slightly, after posting a consistent decline since FY10. However, this is not a source of concern as the ratio of STD-to-EDL is much lower in Pakistan, compared to our regional peers, SBP said. It may be mentioned here that after falling in the past two years, Pakistan's external debt and liabilities posted a $ 4.6 billion increase, reaching $ 65.5 billion by the end of FY14. This increase was driven by the $ 2 billion raised through Eurobonds; and the disbursements from International Financial Institutions (IFIs).
During last fiscal year, the country also received $1.675 billion from the IMF, however, on account of large repayments, net flows from the Fund stood at negative $ 1.5 billion in same period. In addition, revaluation losses from the depreciation of the US Dollar against major currencies also increased the country's public debt by $ 483.7 million during the last year.
Comments
Comments are closed.