Foreign debt servicing surges past $3bn in July-September

KARACHI: The country’s external debts and liabilities increased by $543 million in the first quarter of this fiscal year while external debt servicing soared to over $3 billion.

As per quarterly data released by the State Bank of Pakistan on Friday, the country’s external debts and liabilities rose to $106.891bn by September end, as compared to $106.348bn on Jun 30.

Though the external debts and liabilities have increased during the quarter, its percentage with respect to gross domestic product has significantly declined.

According to the publication, external debts and liabilities as percentage of GDP fell to 38.3 per cent as of Sept 30, versus 45pc on June 30.

The debts and liabilities recorded a jump of $10.78bn from $96.11bn in end of September 2018.

The country had to borrow on large scale during the year to meet the huge gap of about $20bn current account deficit which was reduced to $12bn which the government is trying to down to $7bn by FY20 end.

Due to the high external debts and liabilities stocks, its servicing surged to a massive $3.074bn in the first quarter of this fiscal year. This represented a year-on-year increase of 25.36pc from $2.452bn in 1QFY19.

The debt servicing amount comprises of long-term principal repayment worth $1.87bn, short-term $402m and total interest of $798m.

If the quarterly debt servicing maintains its quarterly trend and magnitude, overall FY20 figure could be around $12bn, which well exceeds the SBP reserves of $8.3bn.

The government can use only SBP foreign currency holdings to meet expenditures like debt servicing, which was recorded at $11.589bn in FY19.

To contain the current account deficit and improve foreign exchange reserves, the government introduced import curbs which gave it some relief on the external front.

However, the same strategy has adversely impacted economic growth as decline in imports have hurt business activity in the activity.

Due to the government’s halt on borrowing from the central bank, most loans have been channelled towards short-term treasury papers and the longer duration investment bonds, which have noticed a healthy demand due to the high key policy rate of 13.25pc.

The recent annual report of SBP on economy also suggested that activity witnessed negative impact of lower imports.

Meanwhile, data on central government’s domestic debt reveals an increase of Rs1.92 trillion over the quarter to Rs22.65tr as of Sept 30, from June end level of Rs20.73tr.

Market treasury bills were the leading contributor, as Rs1.028tr worth of short-term securities were issued on a net basis, taking their stock by September end to Rs5.958tr, up from Rs4.93tr in previous quarter.

Rest came from the Pakistan Investment Bonds which were added by Rs907bn, taking their total value to Rs11.84tr by the end of 1QFY20, as compared to Rs10.933tr on June 30.

Published in Dawn, November 16th, 2019