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Pakistan’s Debt Policy Statement 2012-13

Total external debt recorded at $66.2bn till Q1 FY13 

ISLAMABAD: The total external debt has been recorded at $63.8 billion and after including foreign exchange liabilities of $2.4 billion the total external debt and liabilities have been estimated at $66.2 billion till first quarter of fiscal year 2012-13.

This was revealed in the Debt Policy Statement 2012-13 released here on Monday.

Public and publically guaranteed debt amounts to $47.6 billion out of which is Paris Club $15.3 billion, multilateral $25.7 billion, other bilateral $2.6 billion, Euro Bonds-Saindak Bonds $1.6 billion, military debt $0.1 billion, commercial loans and credits $0.2 billion, Saudi Fund for Development $0.2 billion, SAFE China Deposits $1 billion, NBP/BOC deposits $0.1 million, short-term $0.4 million and IDB $0.4 billion. Private non-guaranteed debt amounts to $4.5 billion out of which Public Sector Enterprises (PSEs) debt is $1.4 billion, while publicly guaranteed debt stands at $0.2 billion.

The International Monetary Fund’s debt is $7 billion of which central government owes $1.9 billion and monetary authorities $5.1 billion.

The total debt of banks is $1.8 billion out of which government borrowing from banks stands at 0.8 billion and utilised non-residents deposits at $1 billion.

In debt liabilities to direct investors inter company debt stands at $2.1 billion, external debt $63.8 billion, foreign exchange liabilities $2.4 billion making a total of external debt and liabilities at $66.2 billion.

Debt Policy Statement 2012-13 warns that debt reduction to sustainable levels can only be achieved with persistent economic growth. The slowdown in growth results in rising debt burden and reducing debt-servicing capacity of the country. It is important for the government to adopt an integrated approach for economic revival and debt reduction strategy, which will require some difficult trade-offs in the short-term, thus implementing structural reforms that boost potential growth, is a key to ensure debt sustainability.

Managing foreign exchange risk is a fundamental component of a prudent debt management strategy. Careful management of currency risk has been increasingly mandated by sovereigns, especially after the currency-crisis episodes of the last decade and the consequent heightened international attention on accounting and balance sheet risks. A comprehensive foreign exchange risk management programme requires establishing and implementing sound and prudent foreign exchange risk management policies and control procedures. The external debt portfolio of Pakistan is contracted in 20 different currencies and the historical losses borne by Pakistan in this respect call for a sophisticated currency-hedging framework to be installed within the government. If currency movements over a longer period of last 20 years are analysed, though the cost of foreign currency borrowing adjusted for exchange rates movement has been 1.5 percent lower than the average domestic interest rates, the saving on this account could have been higher had the State Bank adopted a currency-hedging framework after evaluating its pros and cons.

However, there are costs associated with the provision of government guarantees. In the case of Pakistan, these include, for instance, explicit and implicit guarantees issued to PSEs and unfunded losses of state-owned entities such as Pakistan Steel Mills, Pakistan International Airlines and power sector companies. During the fiscal year 2011-12, the government of Pakistan issued fresh and rollover guarantees aggregating to Rs 203 billion. This issuance amounted to 1.0 percent of the gross domestic product.

Soundness of Pakistan’s debt position, as given by various sustainability ratios, remains higher than the internationally accepted thresholds. Total public debt levels around 3.5 times and debt servicing below 30 percent of government revenue are generally believed to be within the bounds of sustainability. The government is making concentrated efforts to increase the revenues and rationalise current expenditure to reduce the debt burden and improve the debt carrying capacity of the country to finance the growth and development needs.

Pakistan’s external debt and liabilities and its servicing in terms of foreign exchange earnings stood within the acceptable threshold of 2 times and debt servicing below 20 percent of foreign exchange earnings. The government is taking necessary measures to mobilise foreign currency flows to manage the debt repayment of IMF due in next two fiscal years.

Divergent trends between growth in foreign exchange earnings and government revenues on one hand, and foreign exchange payments and expenditure on the other hand, point towards underlying structural issues. The government is focusing on increasing export receipts and other foreign currency non-debt creating flows above and beyond the growth of foreign exchange payments and growth of external debt and liabilities. By doing so, the government will be able to restrict the non-interest current account deficit, and ensure the sustainability of present levels of external debt.

During 2011-12, appreciation of the dollar against other major currencies caused the foreign currency component of public debt to decrease by $1,740 million, however, it was restrained by depreciation of the rupee against the dollar by 10 percent. The first quarter of the current fiscal year noticed a capital loss of $721 million owing to dollar depreciation against other major international currencies.

Public and publically guaranteed debt :

Paris Club $15.3 billion

Multilateral $25.7 billion

Other bilateral $2.6 billion

Euro Bonds-Saindak Bonds $1.6 billion

Military debt $0.1 billion

Commercial loans and credits $0.2 billion

Saudi Fund for Development $0.2 billion

SAFE China Deposits $1 billion

NBP/BOC deposits $0.1 million

Short-term $0.4 million

IDB $0.4 billion

Total $47.6 billion

By Sajid Chaudhry Daily Times

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