Opponents 'presenting only one side of the picture', government complains

Zaheer Abbasi has reported inBusiness Recorder dated 16-01-2017 an interview of Dr Hafiz A Pasha on Aaj TV programme "Paisa Bolta Hai" in which he has claimed that according to data uploaded on the IMF website Pakistan will have to pay $11 billion during 2016-17 and 2017-18.
He has further explained that since 2008 onward there has been a significant growth in the debt to GDP ratio, external debt is growing and ratio of external debt to exports in next two to three years would approach 400 percent. He is also of the view that the short-term borrowing is highly risky and at a high cost.
The report provided reference of data published on IMF website and deliberately presented only one side of the picture by stating that Pakistan would require US$15 billion in the current and next fiscal year on account of external debt servicing. It completely ignores that the disbursement during the said period is expected to be around US$17.7 billion and accordingly there is no risk of refinancing and reserves drawdown as gross official reserves of the country are expected to increase further during FY2017 and FY2018, a fact also acknowledged by the said IMF report/data. The sole purpose of providing such incomplete information is just to make sensation without substance and mislead the public.
The report also incorrectly stated that the public debt to GDP ratio is close to 70 percent. The present government inherited net public debt to GDP ratio at 63.8 percent in 2013. Pakistan's net public debt to GDP ratio increased marginally by 1.1 percent during last three years as compared with 6.8 percent increase witnessed in the global debt to GDP ratio (IMF World Economic Outlook, October 2016). It may also be noted that the net public debt to GDP ratio witnessed an increase of 6.7 percent of GDP during the tenure of previous government. More importantly, it should also be kept in view that the inflation has been exceptionally low that has resulted in lower growth in nominal GDP, compared to the period 2008-2013, exerting an unfavourable impact on debt to GDP ratio.
It also incorrectly mentioned that external debt to exports ratio is expected to approach 400 percent in next two to three years without providing any basis. In fact, the external public debt to export ratio is expected to be around 175 percent while gross external debt (public & private) to exports ratio is expected to be around 243 percent in FY2020 as per the IMF report, which the report has itself referred. Again, selective reporting is evident as the report took liberty to present random numbers without substance.
The report made a false assertion regarding component of external public debt especially with reference to external commercial borrowings and Eurobonds. In this regard, following may be noted:
-- The average cost of the external loans obtained by present government comes to around 3 percent which is significantly lower than the domestic financing cost even after one builds a margin of capital loss due to exchange rate depreciation;
-- Eurobonds and commercial loans outstanding amounts were only US$4.6 billion and US$ 1.5 billion respectively, having combined share of only 10 percent within external public debt as at end June 2016. Remaining 90 percent of external public debt is contributed by concessional multilateral and bilateral sources which are instrumental in enhancing Pakistan's potential output by promoting efficiency and productivity. These loans are, thus, simultaneously adding to the debt repayment capacity of the country.
Lastly, the report painted a bleak picture with regards to sustainability of debt. In fact, the government has been able to reduce the risks associated with its public debt portfolio through re-profiling of its domestic debt portfolio, broadening of investor base through commencement of trading of government debt securities at stock exchanges and mobilisation of concessional external debt to retire its expensive domestic debt. Major debt sustainability indicators have in fact improved in the last three years, a fact that is acknowledged by global stakeholders.
-- "Refinancing Risk of the Domestic Debt Portfolio" was reduced through lengthening of the maturity profile at the end of June 2016. Percentage of domestic debt maturing in one year was reduced to 51.9 percent compared with 64.2 percent at the end of June 2013;
-- "Exposure to Interest Rate Risk" was also reduced, as the percentage of debt re-fixing in one year decreased to 44.4 percent at the end of June 2016 compared to 52.4 percent at the end of June 2013;
-- "Share of External Loans Maturing within One Year" is equal to around 31.9 percent of official liquid reserves at the end of June 2016 as compared with around 68.5 percent at the end of June 2013 indicating improvement in foreign exchange stability and repayment capacity;
-- The IMF debt sustainability analysis shows that external debt would remain on a downward trend over the medium term, with the peak in external financing needs under the most stressed scenario (3.7 percent of GDP) staying well below the risk assessment benchmark of 5 percent of GDP. Further, credit rating agencies in their recent reports acknowledged this fact that Pakistan external debt is on sustainable path and there is very little exposure to medium term vulnerabilities.