KARACHI: Pakistan’s external debt servicing soared to record level of some $18 billion mark in the last fiscal year (FY23), the State Bank of Pakistan (SBP) reported.

According to SBP’s Annual Report on the State of Pakistan’s Economy for FY23, the government repaid $ 17.8 billion during FY23 compared to around $ 13.0 billion in the previous year, depicting an increase of 37 percent or $4.8 billion. It includes debt servicing of principal and interest payments of public external debt.

However, the debt servicing on foreign liabilities declined to $ 224 million during FY23 from $ 330 million in FY22 due to reduction in stock.

The disaggregated analysis of debt servicing shows that increase in both principal and interest payments contributed to higher debt servicing during FY23. Nonetheless, the major increase resulted from the scheduled principal repayments.

Detailed analysis reveals that bulk of debt servicing was made to commercial banks, followed by bilateral and multilateral creditors.

In addition to this, a major chunk of debt servicing was made on account of international bonds, multilateral short-term debt, the IMF and Naya Pakistan Certificates (NPCs).

Factors behind the higher debt servicing during FY23 included higher previous outstanding stock, increase in LIBOR amid global monetary tightening and expiration of Debt Service Suspension Initiative (DSSI).

As most of the external loans were contracted on floating rate, the uptick in LIBOR/ Secured Overnight Financing Rate (SOFR) resulted in increased interest payments. During FY23, the average SOFR increased by 396 bps, whereas LIBOR for 12-month US dollar rose by 247 bps.

Copyright Business Recorder, 2023