Pakistan’s external debt to grow to USD 110 billion in next four years, warn experts

Islamabad [Pakistan], Feb. 3 : Pakistan's overall economic situation was targeted in the critical analysis from independent experts and availed prominent coverage in media.

Federal Finance Minister Ishaq Dar, however, vehemently denied their comments as miscalculation and wrote a detailed article to put the record straight.

According to these experts, the external debt of Pakistan is projected to grow to USD 110 billion within four years and it will need over USD 22 billion a year just to meet external payment requirements, economists said.

It will pose a serious threat to the country's solvency forcing Pakistan to go back to the International Monetary Fund (IMF) to avoid default on international payments as it did in 2013, independent projections by two renowned economists revealed, at the recently held National Debt Conference, as reported by The Nation Former director general debt Dr Ashfaque Hasan Khan in his external debt assessment said that the USD 110-billion external debt level by 2019-20 will be USD 24 billion higher than the projections made by the IMF in its latest report on Pakistan.

He shared his assessment at the debt conference, arranged by the Policy Research Institute of Market Economy (PRIME).

He updated his previous external debt forecast for fiscal year 2018-19 from USD 90 billion to USD 98 billion after the government borrowed heavily in the past one year.

The external debt presently stands at USD 73 billion, which has been projected to swell by 50 percent to USD 110 billion in just four years.

According to the economist no major change is expected in Pakistan's export situation and it is anticipated that by 2019-20, the exports would stand roughly at USD 25 billion, a level that the country crossed in the last year of the previous Government.

The PML-N Government has been heavily borrowing to finance its expenditures as it remains unable to mobilise domestic resources.

The 66.5 percent ratio was 3.3 percent higher than the previous year. The public debt-to-government revenue ratio stood at 442.5 percent against the generally acceptable threshold of 350 percent.

The government also could not increase revenues and its receipts were not sufficient to finance the current expenditures.

The revenue deficit - total revenues minus current expenses - was recorded at 0.7 percent of GDP in 2015-16.

However, this was better than the previous year and the trend was positive. Total public debt stood at Rs. 20.6 trillion at the end of September 2016, an increase of Rs. 3.15 trillion since June 2015. Meanwhile, the Debt Policy Statement has revealed that Pakistan's external debt-bearing capacity slightly weakened last year as the country's stock of external debt increased rapidly compared to its foreign exchange earnings.

The government presented the Debt Policy Statement 2016-17 on Monday in the National Assembly, which was the first statement after the introduction of sweeping changes in the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005 in June last year.

Economists had criticised these amendments, arguing that they were aimed at deflecting attention from the growing public debt.

Headed by its Director General Ehtesham Rashid, the Debt Policy Coordination Office prepared the statement in the light of the FRDL Act aimed at reviewing the government's management of public debt and liabilities.

The external debt-to-foreign exchange earnings ratio increased to 1.1 times, showing that Pakistan's debt-bearing capacity weakened by the end of the last fiscal year.

Total external debt and liabilities rose 14.6 percent to USD 74.6 billion by September last year, according to the statement.

The external debt and liabilities were at USD 61.4 billion in June 2015. In the external debt, the public debt rose to USD 58.7 billion. There were certain areas where the government showed improvement. The external debt-to-foreign exchange reserves ratio slightly declined to 2.5 times, reflecting the positive impact of increase in the foreign currency reserves.

However, these reserves were not increased through non-debt creating instruments like foreign direct investment and exports.

Instead, the government borrowed to push up the reserves. There was also slight improvement in the external debt servicing-to-foreign exchange earnings ratio due to a decline in foreign debt repayments, largely because of repayment of the previous IMF loan.

Going forward, the debt office has predicted that there will be limited pressure from external debt repayments in the medium term.

It has projected limited pressure till fiscal year 2020-21. Before the amendments in the FRDL law, the Government was bound to keep the public debt below 60 percent of the total size of national economy and its revenues should be sufficient to finance at least current expenditures.

However, despite the gross public debt-to-GDP ratio at 66.5 percent in the last fiscal year, the Government was not in violation of the law, thanks to the amendments.

For a developing country like Pakistan, a debt-to-GDP ratio below 50 percent is considered sustainable.

Anything above this threshold is counted as dangerous in the long term, according to economists..

Source: ANI