KARACHI: Pakistan’s total debt and liabilities increased by Rs 12 trillion or 23.7 percent in the first quarter of the current fiscal year, analysts said, due to delays in loan installments from the International Monetary Fund (IMF) and Depreciation of the rupee pushed the figures. Significantly
Debt and liabilities stood at 62.46 trillion rupees in the July-September 2023 fiscal year, up from 50.49 trillion rupees in the same period last fiscal, central bank data showed on Wednesday.
The country’s debt increased by 24.7 percent to 59.37 trillion rupees, while total liabilities increased by 23 percent to 3.56 trillion rupees.
Fahad Rauf, head of research at Ismail Iqbal Securities, said that the increase in loans was mainly from external sources. “Most IMF Loan Tranche of $1.2 Billion and Impact of Rupee Devaluation on Gross External Debt.”
The government’s domestic debt increased by 18.7 percent to 31.40 trillion rupees. According to State Bank of Pakistan (SBP) data, foreign debt stood at Rs 17.99 trillion in July-September fiscal year 2023, up 30.2 percent from a year ago.
Total external debt and liabilities increased by 33.4 percent to Rs 28.94 trillion.
“Managing debt obligations is one of the biggest challenges facing the government,” said Mustafa Mustansar, head of research at Taurus Securities.
He said that debt servicing is one of the reasons for the increase in the country’s debt, which includes increasing fiscal and external liabilities. “Rupee depreciation affects external borrowing costs. Similarly, domestic borrowing costs increase when the policy rate increases.”
State Bank of Pakistan (SBP) data also showed that government debt fell to Rs49.4 trillion at the end of September from Rs49.5 trillion a month earlier. Loans rose by 9.1 trillion rupees or 22.7 percent year-on-year in September.
Pakistan’s five-year credit default swap (CDS), the cost of insuring the country’s sovereign debt, rose to 7,550 basis points (bps) on Tuesday, up 1,929 bps from Monday’s close, according to data from Arif Habib Ltd. is more
During the current week, the government’s CDS level remained elevated on investor concerns that the country may not meet its promise to pay $1 billion to creditors as the sukuk matures on December 5, 2022.
According to one analyst, “Pakistan will likely pay at maturity as it is in the IMF program.”
Complications, Concerns
However, there are concerns over the end of the ninth review of the IMF’s bailout package.
Although the date is yet to be fixed, an IMF staff mission is expected in Islamabad by the end of this month as the fund needs Pakistan to make necessary amendments first.
The government is requesting some exemptions to performance criteria due to flood losses and the fund’s insistence on maintaining an agreed tax-to-GDP ratio of at least 11 percent.
The delay in the IMF review is further unnerving foreign investors.
The situation appears to be more complex as the country faces a number of challenges, including political uncertainty, threats to exports and remittances from the global economic recession, and significant overall fiscal needs in the coming years.
“These risks along with the rating downgrades have further worsened investor sentiment. Hence the rise in default spreads,” analysts said.
The country’s external debt and liabilities fell to $126.9 billion as of September 30, 2022, from $127 billion a year ago.
Due to foreign debt repayments, the nation is expected to face significant potential outflows during the current quarter, which could put pressure on both foreign exchange reserves and the currency.
