The country’s external debt service reached $10.886 billion in the first three quarters of 2021-22, compared to $13.38 billion for the whole of FY21.
The country’s external debt service reached $10.886 billion in the first three quarters of 2021-22, compared to $13.38 billion for the whole of FY21.
Cash-strapped Pakistan could face a serious economic problem as its foreign exchange reserves are rapidly depleting amid rising external debt servicing, according to a July 13 media report.
The country’s external debt service reached $10.886 billion in the first three quarters of 2021-22, compared to $13.38 billion for the whole of FY21. It was just $1.653 billion in 1QFY22 from $3.51 billion in Q1 2020-21, but jumped to $4.357 billion in 2QFY22 and $4.875 billion in 3QFY22.
The country faces a serious threat on its external front as the State Bank of Pakistan’s foreign exchange reserves fell to single digits despite a $2.3 billion inflow from China at the end of the month last, the Dawn reports the newspaper.
“The increasing size of external debt service each quarter indicates that the government has borrowed dollars at higher commercial rates to meet its external debt repayment obligations,” the report said.
The current Pakistan Muslim League-Nawaz (PML-N)-led coalition government has not disclosed the rate at which it borrowed $2.3 billion from China.
Initially, Beijing had agreed to roll over the syndicated loans before the ousting of the previous PTI government. However, Prime Minister Shehbaz Sharif’s administration had to wait two months to secure the Chinese loan.
The financial sector and other players in the economy are still not satisfied with the hidden cost of the Chinese loan. The market is full of speculation that Chinese loans were taken at a very high rate.
“Finance Minister Miftah Ismail assured Pakistanis that the release of the $1 billion tranche is expected within days, but three months have passed without a satisfactory response from the IMF. Bankers believe the fund is dictating the government, like Washington, to do more,” the report said.
Since the International Monetary Fund (IMF) stopped financing, the country does not receive project financing from the World Bank and the Asian Development Bank.
A senior analyst said the Chinese knew Pakistan was unable to re-enter the international debt market and the IMF was in no rush to help Islamabad. This is the reason why the Chinese lent money at a very high rate.
Pakistan has been forced to pay debt service through commercial borrowing, meaning higher external debt in the next fiscal year.
Governments in fiscal year 22 which ended on June 30 could not control the influx of huge imports totaling $80 billion, creating a large current account deficit (CAD), which is enough for him alone in understanding the external weakness of the economy.
“Despite record remittances and exports, the country is unable to raise dollars from the international debt market,” the report said. Cash-strapped Pakistan is facing increasing economic challenges, with high inflation, dwindling foreign exchange reserves, a growing current account deficit and a depreciating currency.
With the current account deficit increasing to $13.2 billion in the first nine months and pressing demands for repayment of external loans, Pakistan needed $9-12 billion in financial assistance until in June 2022 to avoid further depletion of foreign exchange reserves.
