The country's totalled external debt servicing has crossed $ 10 billion mark during the first half of current fiscal year 2011-2012 (FY12) mainly due to rising burden of foreign debt and massive repayments of scheduled banks' borrowing.
Sources in banking sector told Business Recorder on Saturday that payments under external debt and liabilities servicing is continue to surge and the country has spent over $ 10 billion on external debt and liabilities servicing of principal and interest payments.
Economists have expressed their serious concern over the massive and rising spending on debt servicing and termed it an alarming situation for policy-markers. "IMF had already stopped Stand-By Arrangement (SBA) tranches and the country's foreign reserves are also depleting due to high foreign payments", they said.
There is likely to be an increase in overall debt servicing during the second half of FY12 due to repayment of IMF SBA loans starting from second half of the year. The country has to pay $1.2 billion of SBA's during January-June in three instalments, they added.
"Pakistan has sometime to manage its debt problems and there is no immediate risk of default. However, failure to deal with underlying structural weakness like low tax revenues, fiscal slippages and weak governance in this year will potentially expose the country to debt problems in the future", economists said.
According to State Bank of Pakistan (SBP) the country's totalled external debt servicing has reached at $ 10.356 billion mark during the first half (July-Dec) of FY12 owing to high scheduled bank's short term borrowing and its repayment. Totalled external debt and servicing, during the period under review, includes $ 9.828 billion of principal and $528 million of interest payment.
This debt servicing during the first half of FY12 is even higher than the totalled debt servicing made in last fiscal year (2010-2011), in which external debt servicing stood at $ 8.885 billion including $ 7.786 billion of principal amount and $ 1.069 billion of interest payment.
The detail analysis revealed that, major servicing has made during the second quarter, while servicing during first quarter was very nominal. According to SBP, $ 2.101 billion worth debt servicing was made in first quarter (July-Sep) of FY12 including $211 million of interest and $1.89 billion of the principal amount.
Similarly, during the second quarter (October-December) of FY12 external debt servicing stood at $ 8.255 billion comprising $7.938 billion of principle and $ 317 million of interest.
The major payments of debt servicing have been made on account of scheduled banks borrowing, under which $ 8.546 billion has been spent on debt servicing. Some $ 1.255 billion servicing was made in first quarter and $ 7.291 billion in second quarter of current fiscal year.
According to SBP these borrowings are mainly on overnight to one week maturity resulting in huge gross repayments in line with their frequent small size borrowings and repayments soon after. However, net increase in stocks is nominal.
Similarly, on principal amount side external debt servicing under public debt stood at $ 871 million, International Monetary Fund (IMF) $ 131 million, Public Sector Enterprises none-guaranteed debt $ 205 million, private non-government debt $192 million during July-December of FY12. While, analysis of interest payments showed that cumulatively $ 528 billion has been spent on the interest payments, which includes $469 million under head of public debt, $ 92 million to IMF and some $39 million on account of private non-guaranteed debt during first half of current fiscal year.
"Scheduled banks' external borrowing is very short term in nature, and is primarily for managing their Nostro accounts. Against this backdrop, inclusion of scheduled banks' debt servicing on external borrowing will clearly distort the analysis of external debt servicing", they said. They said that huge payments under the debt servicing and depleting reserves has already affected exchange rate during last two months resulted dollar reach Rs 90 level.
Due to rising servicing and foreign payments some $ 1.79 billion decline has noted in liquid foreign exchange reserves since end Jun FY11 and current decline is entirely on account of SBP reserves, which have declined by over $ 2.57 billion during the July-February period, they informed.
The decline in SBP reserves reflects lower inflows and higher payments as compared with last year. In particular, inflows from donor agencies remained much lower than projected, while debt servicing has increased compared to last year, they said.
It may be mentioned here that debt servicing of totalled debt and liabilities has reached Rs 1.0 trillion in FY11, which was 5.8 percent of GDP.