Debt sustainability indicators worsen in Pakistan

Pakistan’s major debt sustainability indicators have witnessed marked deterioration during the first half of this fiscal year in the middle of steep currency devaluation and interest rates hikes, revealed a semi-annual debt bulletin of the finance ministry, The Tribune reported. The July-December 2022 report showed that the share of external public debt rose in the past six months, while the average time of maturity and period of resetting the interest rates have further shortened. This is synchronous with interest rates at historic highs and the currency devaluing by 56 per cent since the incumbent government came into power a year ago, The Tribune reported. The report showed that the share of external debt in the total public debt rose from 37 per cent in June to 37.2 per cent by December, heightening the currency risks simultaneously with the rupee sinking and foreign countries shying away from extending loans. The debt office publishes a semi-annual debt bulletin containing information about debt stocks, debt operations and the sources of change in the debt stocks on a semi-annual basis, The Tribune reported. According to the report, “Large external payments in the wake of low foreign exchange reserves can pose liquidity problems and even destabilise the exchange rate which in turn, can increase the burden of external loans measured in local currency.” Although the government is not inclined towards debt restructuring, worsening indicators coupled with a lack of adequate foreign funding suggest that Pakistan will soon have to embrace this path, The Tribune reported. According to the debt bulletin, in dollar terms, Pakistan’s total public debt stood at USD 233 billion by December, including USD 86.6 billion in external public debt. The country needs to service 28 per cent of its debt in just one year, which is quite a big chunk and will expose the nation to all types of debt-related risks. The floating rate domestic debt is now PKR 22.5 trillion or 68 p