Pakistan’s external debt servicing rose to USD 10.886 billion in the first three quarters of 2021-22 compared to USD 13.38 billion in the entire FY21.
The situation will create a serious problem for Pakistan as its foreign exchange reserves are fast depleting amid rising external debt servicing, reported Dawn.
The external debt servicing was just USD 1.653 billion in 1QFY22 against USD 3.51 billion in the first quarter of 2020-21.
However, the debt servicing jumped to USD 4.357 billion in 2QFY22 and further to USD 4.875 billion in 3QFY22, reported Dawn.
Pakistan has been facing a serious threat from its external front as the State Bank of Pakistan’s foreign exchange reserves fell to single digits despite a USD 2.3 billion inflow from China late last month.
The increasing size of the external debt servicing in each quarter indicates the government has been borrowing dollars at higher commercial rates to meet its foreign debt repayment obligations, reported Dawn.
The Pakistan Muslim League – Nawaz (PML-N) led coalition didn’t disclose the rate at which it had borrowed USD 2.3 billion from China.
Initially, Beijing had agreed to roll over the syndicated loans before the ouster of the Imran Khan government. However, the Shehbaz administration had to wait for two months to secure the Chinese loan, reported Dawn.
The financial sector and other stakeholders of the economy are still not satisfied with the hidden cost of the Chinese loan. The market is full of speculations that Chinese loans were taken at a very high rate.
The two governments in FY22 could not control the influx of huge imports totalling USD 80 billion creating a large current account deficit (CAD).
So far the CAD in 11MFY22 reached USD 15.199 billion compared to just USD 1.183 billion in the same period of last fiscal year. The huge CAD is alone enough to understand the external weakness of the economy, reported Dawn.
Finance Minister Miftah Ismail has been assuring Pakistanis that the release of the USD 1 billion tranche is expected in a few days but three months have gone without a satisfactory reply from the IMF. Bankers believe that the fund is dictating the government like Washington to do more.
Since the IMF has stopped funding the country is not getting project funding from the World Bank and Asian Development Bank, reported Dawn.
A senior analyst said that the Chinese knew that Pakistan was unable to return to the international debt market and the IMF was not in a hurry to help Islamabad. This was the reason for Chinese lent the money at a very high rate.
Pakistan has been paying debt servicing through commercial borrowing which means more external debt servicing in the next financial year.