ISLAMABAD: The caretaker government, during its brief two-and-a-half-month tenure, estimated that Pakistan’s overall external debt servicing obligation would be $9.3 billion in the current fiscal year, which was slightly less than the gross official foreign currency reserves held by the State Bank of Pakistan (SBP).
The $9.3-billion external debt repayment and servicing requirement underscores the challenges the new Pakistan Tehreek-e-Insaf (PTI) government will face in arranging funds to meet the obligation.
Debt-related financing requirements have been shown in the “stabilisation and economic growth policy recommendation paper”, prepared by the former interim finance minister Dr Shamshad Akhtar-led finance ministry.
The report was submitted to the caretaker prime minister with a request to pass it on to the new government.
The report showed that Pakistan would require $9.3 billion to meet its debt-related obligations in fiscal year 2018-19, including repayments to the International Monetary Fund (IMF). It put interest payment on external debt at $1 billion in the first half of the fiscal year.
The $9.3-billion debt-related requirements are slightly lower than $10.2 billion worth of foreign currency reserves held by the central bank.
It seems that the PTI government will have no option but to retire the external debt by contracting new debt, at least in its first year in power.
However, the caretaker government projected the overall gross financing requirements (external debt servicing and current account deficit) at $25-26 billion, which appeared to be on the downward side. It estimated the current account deficit in the range of $15-16 billion.
The current account deficit in July widened to $2.2 billion, higher by 14% over the same month of last year, the SBP reported on Monday. If corrective measures are not taken, the deficit will jump above $25 billion at the current pace. In its report, the caretaker government projected $4 billion in current account deficit in the first quarter and another $3.2 billion in the second quarter of the current fiscal year.
These projections suggest that the finance ministry did not reflect a true picture of the external sector, which often results in unnecessary pressure on the foreign currency reserves.
Finance Minister Asad Umar on Monday assumed his responsibilities and held the first formal meeting with ministry officials. He is said to have conveyed the finance secretary his reservations about the quality of human resources in the ministry, said sources.
In addition to finding a solution to the mounting external sector challenges, the finance minister will have to build a credible and competent team.
