Economic Affairs Division (EAD) has reportedly cautioned the government that Pakistan will be bound to disclose its public sector debts including those under the CPEC and face a ban on new concessional loans in case of availing debt payment relief from G-20 countries, well-informed sources told Business Recorder.
Sharing the details, sources said, owing to the outbreak of Corona pandemic all over the world developing countries are hard pressed to mobilize resources for meeting emergency health and economic needs. The World Bank and the IMF had accordingly requested the G-20 members to provide economic relief to the affected countries. In response thereof, virtual meetings of the G-20 Finance Ministers and Central Bank Governors was held on April 15, 2020 with Saudi Arabia in the chair.
The meeting focused on the Covid-19 crisis and its health, social and economic impacts. The meeting endorsed the G-20 Action Plan in response to Covid-19 pandemic which sets out key principles guiding the Action Plan and its commitments to specific actions to drive forward international economic cooperation to navigate through the crisis and towards a robust, sustained and inclusive global recovery.
The G-20 Action plan has the following key components: (i) Health - which calls for greater cooperation and increase funding for research, diagnostics, therapeutics and vaccines; (ii) economic and financial response - to support global and domestic economy to protect the vulnerable and maintain conditions for a strong recovery; (iii) returning to strong, sustainable, balance and inclusive growth - once containment measures are lifted; (iv) international support to countries in need - including measures by International Financial Institutions, International Monetary Fund (IMF), World Bank Group (WBG) and other multilateral development banks as well as time-bound suspension of debt service payments for the poorest countries that request forbearance; and (v) lessons for future - working with G-20 Health Ministers, the WHO and other organisations on long pandemic preparedness.
The salient points of debt service suspension initiative include the following: (a) all IDA countries which are current on any debt service to the IMF and the World Bank; (b) access to the initiative will be limited to countries which have made a formal request for debt service suspension from the creditors and are benefiting from, or have made a request to IMF management for, IMF financing including emergency facilities; (c) suspension will last until end-2020; (d) creditors will consider possible extension during 2020, taking into account a report on liquidity needs of eligible countries by World Bank and IMF; (e) suspension period will start on May 1, 2020; (f) both principal repayments and interest payments will be suspended; (g) a cut-off date protecting new financing in case of possible future restructuring will be sent on March 24, 2020; (h) repayment period will be three years, with a one-year grace period( four years total); (i) the suspension of payments will be Net Present Value (NPV) - neutral; and (j) treatment will be achieved through rescheduling or refinancing.
According to sources, commitment from prospective beneficiary countries has been required to use fiscal space as a result of availing this facility, to increase social, health or economic spending in response to the outbreak of Covid-19. Scope of creditors extends to all official bilateral creditors, whereas multilateral development banks will be asked to further explore the options for the suspension of debt servicing payments and private creditors shall also be called upon publicly to participate in the initiative. However, this condition would not apply in the case of Pakistan since roll-over/ refinancing of commercial loans is consistent with the financial strategy envisaged under the Extended Fund Facility agreed with the IMF.
The sources said, debt stock of 155 loans obtained from 11 G-20 countries is $ 20.7 billion. From May-June, Pakistan was to pay an amount of $ 320.07 million as principal and $ 95.24 million as interest ( total $ 415.31 million) whereas from July to December 2020, Pakistan was to pay $ 1.15278 billion as principal and $ 227.36 million as interest ( total $ 1.380.14 billion). From May to December 2020, the amount is $ 1.47285 billion as principal and $ 322.06 million as interest (total $ 1.79545 billion).
The payment obligations of Government of Pakistan amount to $ 1.79545 billion for FY 20-21. In case of availing the debt relief initiative, Pakistan has to pay $ 1.943 billion during FY 21-25 which means payment of an additional $ 149 million.
The cash flow impact of rescheduling is as follow (i) - bilateral (interest + principal, FY20, $ 415 and H1 FY21, $ 1.380 billion) total $ 1.795 billion; (ii) FY21, H2, $ 27 million; (iii) FY22, $ 353 million; (iv) FY23, $ 639 million; (v) FY24, $ 621 million; and (vi) FY25, $ 304 million (total $ 1.943 billion).
Economic Affairs Division maintains that opting for debt relief will not add only payment obligations of $149 million but also be subject to following three compelling conditionalities: (i) using the created space to increase social, health or economic spending in response to the crises. A monitoring system is expected to be put in place by IFIs;(ii) disclosure of all public sector financial commitments (debts) and ;(iii) not to contract any new non-concessional debt during the suspension period, other than agreement under this initiative or in compliance with limits agreed under the IMF Debt Limit Policy or WBG policy on non-concessional borrowing, which apparently includes bonds/Sukuk.
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