At the start of 2014-15, the external debt of the Government of Pakistan stood at $54.8 billion (ie on the 30th of June 2014), which was equivalent to 22.5 percent of the GDP and constituted about 84 percent of the total external public debt. The Budget 2014-15 envisaged a gross inflow of $6.2 billion consisting of project loans of $1.7 billion; program loans of $2 billion and other inflows of $2.4 billion (including Euro and Ijara Sukuk bonds). With debt repayment of $3.3 billion, the net inflow was expected to be about $3 billion. However, the revised estimates reveal an external borrowing of $6.5 billion in 2014-15, up by 6 percent than that originally anticipated. The highest increase of 27 percent took place in project loans while the programme loans declined by over 7.5 percent. Other inflows also increased due to the receipt from flotation of Sukuk bonds and borrowing from Islamic Development Bank amounting $1 billion and $0.9 billion respectively, both doubled compared to their budgeted amount.
Focusing on the repayment of external debt, the budget estimated $3.3 billion to be retired during 2014-15 but the revised estimates show that government retired $2.9 billion (lower by $0.4 billion than the projected amount). As a result, the net inflow of external borrowing increased by $0.7 billion (26 percent) more than the budgeted amount and stood at $3.6 billion in 2014-15. This indicates that the government opted for external borrowing in order to build up the level of foreign exchange reserves.
Given this, the external debt of the government stood at $58.4 billion by the end of June 2015 as per revised estimates. Though the government's external debt-to-GDP ratio declined slightly (0.3 percentage points) during 2014-15 compared to that in 2013-14, it increased by 1.7 percentage points compared to that expected in the budget.
An important indicator of external debt sustainability is the ratio of external debt to exports of goods and non-factor services. In the context of the external debt of the GOP, this ratio stands at 180 percent in 2013-14 and is expected to increase to up to 200 percent in 2015-16.
The current Budget of 2015-16 envisages gross inflow of external borrowing at $7.2 billion up by $0.7 billion compared to that in 2014-15. This increase is anticipated by relying largely on other loans category that includes floating of Euro bonds and China Safe Deposits each worth one billion dollars. Debt repayment is expected to be at $3.1 billion, which is only $0.2 billion (21 percent) higher than the revised estimates. This creates a net inflow of $4.1 billion. If external borrowings are restricted to the budgeted level then the government external debt-to-GDP ratio will stand at 20.8 percent at the end of 2015-16, which is 0.8 percentage points less than that at the end of 2014-15.
The composition of debt which the government claims is disbursed or credited in its accounts during July-March as per Economic Survey 2014-15 is shown in Table 2. Total amount disbursed was $4 billion comprising project aid, non-food aid, BOP/budgetary support (including loan from IMF of $1.04 billion) and relief. Debt servicing during that period was $2.34 billion resulting in a net inflow of $1.66 billion. In addition, the government also claims the inflow of foreign exchange from floating Ijara Sukuk bonds of worth $1 billion and proceeds from privatization of HBL amounting $0.76 billion. This results in an overall net inflow of $3.43 billion. However, the amount of foreign exchange reserves acquired during July-May 2014-15, amounts to $2.82 billion by government (SBP) and $0.06 billion by private sector (commercial banks). This indicates a difference of $612 million. It is likely that some of the amount under privatization proceeds of HBL might not yet have been credited.
This is important to mention that the current account shows a deficit of $1.5 billion during July-March 2014-15 and hence did not contribute in building up foreign exchange reserves. As a result, the existing reserves with SBP are primarily attained through external borrowing largely from project aid, loan from IMF and Sukuk bonds. Thus, the inflows of foreign exchange resources or reserves held with the government are in fact liabilities to the government that have to be paid back when they get matured (usually in a period of 3 to 4 years).
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Table 1: Level of External Borrowing and Debt of the GoP ($ Billions)
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Revised Budget Revised Budget
Estimates Estimates Estimates Estimates
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2013-14 2014-15 2014-15 2015-16
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Gross Inflow 6.6 6.2 6.5 7.2
Project Loans 1.6 1.7 2.2 2.1
Program Loans 2.4 2.0 1.8 1.9
Other Inflows 2.0 2.4 2.5 3.3
Debt Repayment 2.6 3.3 2.9 3.1
Net Inflow 4.0 2.9 3.6 4.1
External Debt (at end of year) 54.8 57.7 58.4 56.4
External Debt as % of GDP 21.9 19.8 21.6 20.8
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Table 2: Composition of External Debt ($ Billions)
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2014-15
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(Jul-Mar)
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Project Aid 1.76
Non-Food Aid 0.01
BOP (incl. IMF loan) 2.13
Relief 0.11
Total 4.00
Debt Servicing 2.34
Net Inflow 1.66
Ijara/Sukuk 1.00
Privatization proceeds (HBL) 0.76
Total Inflow 3.43
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(The writer is associated with Social Policy and Development Centre)
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