Virendra Pandit
New Delhi: Nearly bankrupt, Pakistan has informed the International Monetary Fund (IMF) that its debt servicing costs may go up to PKR 8.5 trillion in the current financial year and that efforts are being made to lower this projection through adjustments in debt maturity profiles.
A substantial portion of this debt is attributed to domestic debt servicing while external debt servicing exceeds PKR 900 billion, the media reported on Tuesday.
Pakistan has apprised the global lender that its debt servicing costs may escalate to Pakistan Rupee (PKR) 8.5 trillion, reflecting a PKR 1.2 trillion deviation from the allocated budget, The Express Tribune said.
The cash-strapped South Asian country faces challenges in securing around USD 6.5 billion in external debt this year due to ‘unfavorable’ economic conditions.
To address this external financing gap, Islamabad requested the global lender’s assistance, despite its ongoing engagement with the IMF program. Excessive spending on interest payments and difficulties in raising external debt in challenging economic conditions are the central concerns in the discussions for a USD 710 million loan tranche, the media outlet said.
The IMF has raised questions and will provide its assessment next week.
According to reports quoting government sources, the IMF anticipates Pakistan’s budget deficit to surge beyond initial estimates because of the mounting debt servicing costs. Talks have also covered Pakistan’s debt management office, with concerns about understaffing and a reliance on foreign-funded consultants.
The IMF will review these figures and assess the revised budget deficit and external financing requirements. The two sides are negotiating for a USD 710 million second loan tranche as part of a USD 3 billion short-term program.
The IMF believes that raising debt with 12-month treasury bills will have an accounting impact but won’t significantly affect the overall debt cost. The IMF program is set to conclude in April 2024.
Because of higher interest payments, the projected federal budget deficit of PKR 7.5 trillion could reach a record PKR 8.7 trillion, even with other estimates remaining unchanged.
Pakistan’s external loans of around USD 6.5 billion will depend on market conditions. The government has requested the IMF’s assistance in arranging these loans, with external financing requirements below USD 24 billion, adjusted for a lower projected current account deficit and the rescheduling of Chinese loans. Some of the shortfall may be offset by reducing imports to lower the current account deficit further.
The prospects for raising debt through Green Bonds are uncertain, despite discussions on its rules at the Special Investment Facilitation Council (SIFC) level, the reports added.