Increase of only $0.7bn in external debt in FY2016-17

ISLAMABAD: The net increase in external public debt during the fiscal year 2016-17 was recorded at US$0.7 billion till March end, bringing the total external debt to US$58.4 billion, which is a manageable limit.

Collectively, till March end, there has been increase of only US$10.3 billion in the external, which shows an average of US$2.57 billion per annum.

The actual external public debt servicing stood at US$4.5 billion in 2014-15, US$4.3 billion in 2015-16, and is projected to be US$5.5 billion by end-June 2017, spokesman of the Finance Division said.

The average cost of external loan portfolio as of end-March 2017 stood at 2.15% per annum which is significantly lower than the cost of domestic financing.

"Thus cost of external debt is not only economical but also dominated by long term funding," he added.

Out of total public debt, external debt constitutes only 29 percent as of end-March 2017. Within total external debt, the largest component is multilateral and bilateral concessional debt, which constitutes 87 percent.

"It is highlighted that external debt sustainability has increased substantially during the last four years supported by a prudent debt management policy and macroeconomic stability," the spokesman added.

Debt sustainability analysis carried out recently by an international development partner shows that external debt would remain on a downward trend over the medium term staying well below the risk assessment benchmarks.

The increased sustainability of external public debt is evident from the fact that the "share of external loans maturing within one year" has been reduced from 68.5 percent of official reserves at the end of June 2013 to 31.9 percent at the end of December 2016, showing improvement in foreign exchange stability and repayment capacity.

Furthermore, credit rating agencies in their recent reports acknowledged the fact that Pakistan external debt is on sustainable path.

Loans from multilateral and bilateral development partners are primarily aimed at removing structural bottlenecks in the economy.

These loans, being concessional and long term, strengthen the debt repayment capacity of the country.

Besides, these loans support implementation of structural reforms in the area of energy, taxation, doing business, trade facilitation, education and public sector enterprises.

These loans are dominated by long term maturities and, therefore, do not add to debt payment vulnerabilities. Furthermore, these concessional external loans have been used to retire relatively more expensive debt.

As of end-June 2013, the SBP foreign exchange reserves were around US$6 billion, out of which US$2.25 billion were through short term FX swap with a friendly country maturing in less than 60 days.

Therefore, practically SBP's true FX reserves were only US$3.75 billion as at end-June 2013.

The total reserves of the country as of June 30, 2013 were US$11.02 billion.

As of July 21, 2017, SBP foreign exchange reserves were US$15.002 billion while the total FX reserves of the country stood at US$20.436 billion. Thus Pakistan's FX reserves continue to remain at a healthy level and exchange rate remains stable, he added.