Pakistan needs to repay a whopping $77.5 billion debt in next 3 years
3 min read . Updated: 08 Apr 2023, 09:33 PM IST
Premium- Problematic is the fact that nuclear-armed Pakistan with a population of nearly 230 million may be unable to meet its external debt obligations - which will trigger a sovereign default
Pakistan is in the middle of a deep economic crisis amid steep currency devaluation and interest rates hikes with its major debt sustainability indicators witnessing marked deterioration during the first half of this fiscal year.
Amid the crippling economic crisis, the Shehbaz Sharif-led government in Pakistan will have to return $77.5 billion as external debt in the next three years, that is by 2026. The numbers were mentioned in an analysis by United States Institute of Peace (USIP).
The report also noted that a major portion of the $77.5 billion is owed to China, and has to be paid in June when a $1 billion Chinese SAFE deposit and a roughly $1.4 billion Chinese commercial loan would mature.
A report by Express Tribune showed that Pakistan's share of external debt in the total public debt rose from 37% in June to 37.2% by December, heightening the currency risks simultaneously with the rupee sinking and foreign countries shying away from extending loans.
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, reported The Express Tribune.
Pakistan could default on its debt, which could lead to intensifying political turmoil amid a situation of surging terrorism.
Further problematic is the fact that nuclear-armed Pakistan with a population of nearly 230 million may be unable to meet its external debt obligations - which will trigger a sovereign default, the USIP analysis said.
Pakistan also need to repay Saudi Arabia and private creditors. From April to June 2023, the external debt servicing burden is $4.5 billion, the analysis said.
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 ₹22.5 trillion or 68 per cent of domestic debt, which is poisonous due to interest rates at a record 20 per cent.
To overcome these, Pakistan hopes to convince China to refinance and rollover both debts, something the Chinese government and commercial banks have done in the past.
Even though Pakistan evades defaulting in 2023, the year 2024 will be even tougher for the country. This is because the debt servicing will rise to nearly $25 billion.
This includes $15 billion of short-term loans and $7 billion in long-term debt, including a vital $1 billion repayment on a Eurobond in the fourth quarter.
On the other hand, the short-term debt repayments include $4 billion Chinese SAFE deposits, $3 billion Saudi deposits and $2 billion UAE deposits.
All things considered, if Pakistan fails to repay completely, there will be a cascade of disruptive effects. Pakistan's imports could be disrupted, which could lead to a shortage of some essential goods and commodities.
The finance ministry stated that containing exposure to external debt is important to manage the exchange rate risk. "The depreciation of the rupee over the last four years against international currencies has resulted in a higher value of external debt when translated into local currency."
(With agency inputs)