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ISLAMABAD: External debt of $81.606 billion in the Economic Survey 2020-21 does not contain foreign exchange liabilities (foreign currency bonds, SWAP), public sector enterprises debt, banks and private sector borrowing.

State Bank of Pakistan (SBP) however includes all these to determine total external debt liabilities at $116.309 billion by March 2021.

The Survey noted that Pakistan’s total public debt was Rs 38.006 trillion by end March 2021 compared to Rs 36.399 trillion by end June 2020, registering an increase of Rs 1.607 trillion during the first nine months of the current fiscal year.

Increase of Rs 1.607 trillion during the first nine months of current fiscal year was much less compared to an increase of Rs 2.499 trillion witnessed during the same period last year. The increase in total public debt during the first nine months of the current fiscal year was lower than federal government borrowing of Rs 2.065 trillion to finance its fiscal deficit.

The differential is primarily attributable to appreciation of Pak rupee against US dollar by around 9 percent which led to decrease in the value of external public debt when converted into Pak Rupees, Survey added.

Pakistan has witnessed one of the smallest increases in its public debt during the pandemic. Global public debt to GDP ratio increased by 13 percentage points, from 84 percent in 2019 to 97 percent in 2020, whereas, Pakistan’s Debt-to-GDP ratio witnessed minimal increase of 1.7 percentage points and stood at 87.6 percent at end June 2020 compared to 85.9 percent end June 2019. The Debt-to-GDP ratio of Pakistan is expected to decline and will remain below 84 percent by the end of the current fiscal year.

The Survey noted that external public debt registered at $81.6 billion end March 2021 increasing by around $3.6 billion during first nine months of current fiscal year. The increase reveals that debt from multilateral and bilateral sources increased by $2.2 billion. This amount also includes $0.5 billion received from the IMF under Extended Fund Facility (EFF). The stock of Pakistan Banao Certificates and Naya Pakistan Certificates cumulatively registered an increase of $0.4 billion.

Gross external loan disbursements recorded at $7.724 billion during first nine months of 2020-21, including disbursements from multilateral sources which amounted to $3.397 billion and accounted for 44 percent of the total disbursements. Bilateral sources contributed $1.207 billion or 16 percent in total disbursements. Out of this SAFE Deposits from China amounted to $ 1,000 million; and commercial loans contributed $3.120 billion or 40 percent of total disbursements.

External public debt repayments recorded at $5.147 billion during first nine months of current fiscal year compared to $5.537 billion during the same period last year. This reduction in repayments is primarily due to Debt Service Suspension Initiative (DSSI) initiative and no repayment of Eurobonds/Sukuks during the current fiscal year. Interest payments recorded at $1.080 billion during first nine months of current fiscal year as compared to $1.580 billion during same period of preceding year.

Interest was recorded at Rs 2,104 billion during first nine months of current fiscal year against its annual budgeted estimate of Rs 2,946 billion. Domestic interest payments were Rs 1,934 billion and constituted around 92 percent of total interest servicing during first nine months of current fiscal which is mainly attributable to higher volume of domestic debt in total public debt portfolio. On a full year basis (2020-21), interest servicing is expected to remain below the budgeted estimates primarily due to extension of DSSI from January to June 2021, appreciation of Pak Rupee against US Dollar and lower interest servicing on account of National Savings Schemes due to withdrawals against discontinued prize bonds.

In addition to net external inflows, following factors influenced the movement in external public debt stock during first nine months of current fiscal year: in US Dollar terms, revaluation loss owing to depreciation of US Dollar against other international currencies increased the external public debt stock by around $1.1 billion. This increase was mainly driven by depreciation of US Dollar against Chinese Yuan by 8 percent, Euro by 5 percent and Special Drawing Right (SDR) by 3 percent; the translational loss on account of depreciation of US Dollar against other international currencies was more than offset by the appreciation of Pak Rupee against US Dollar by 9 percent which led to reducing the Rupee value of external public debt.

Domestic debt was recorded at Rs 25.552 trillion at end March 2021, registering an increase of Rs 2.270 trillion during first nine months of current fiscal year.

Permanent debt constituted 62 percent of domestic debt portfolio and recorded at Rs 15.882 trillion end March 2021, representing an increase of Rs 1.852 trillion during first nine months of ongoing fiscal year. The bifurcation of this increase reveals that government net mobilization through issuance of PIBs and GIS was Rs 1,488 billion and Rs 439 billion respectively, whereas a net retirement amounting to Rs 74 billion was observed in Prize Bonds due to discontinuation of prize bonds of various denominations.

Floating debt was recorded at Rs 6,000 billion or around 24 percent of total domestic debt portfolio at end March 2021. During first nine months of ongoing fiscal year, net mobilization through issuance of T-bills was Rs 421 billion.

The stock of unfunded debt stood at Rs 3,652 billion at end March 2021, constituted around 14 percent of total domestic debt portfolio. Unfunded debt recorded net reduction of Rs 22 billion during first nine months of current fiscal year.

Misaligned economic policies of the past, including large fiscal deficits, loose monetary policy and defence of an overvalued exchange rate, fuelled consumption and short-term growth but steadily eroded macroeconomic buffers, increased external debt, inflated current account deficit and depleted international reserves, the Survey maintained.

External public debt to foreign exchange reserves ratio improved and recorded 4.1 times during 2019-20 compared with 5.1 times during last fiscal year, on the back of slowdown in fresh accumulation of debt and the rise in the country’s foreign exchange reserves.

Growth in external public debt servicing was mainly driven by repayments of Eurobonds and commercial loans which outpaced the growth in FEE and accordingly external public debt servicing to foreign exchange earnings ratio increased to 20.4 percent in 2019-20 compared with 17.2 percent in 2018-19.

With improved balance of payment situation, external debt sustainability is expected to improve further going forward.

Pakistan entered the international capital market in April 2021 after a gap of over three years by successfully raising $2.5 billion through a multi-tranche transaction of 5, 10 and 30 year Eurobonds.

Copyright Business Recorder, 2021