Pak’s external debt may increase due to dependence on foreign loans

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Pakistan’s external debt is likely to increase in the near future as it is forced to borrow more and more each year to repay its outstanding external loans, finance its current account and build up its foreign exchange reserves.

Over the past 15 years or so, the country’s debt and external liabilities have grown at varying rates, but no effort during this period has succeeded in containing the exponential increase in the burden, Dawn reported.

This is clear from the growth of more than 150% in debt and external liabilities to 116.3 billion USD, compared to 45.4 billion USD at the end of fiscal 2008. In addition, Pakistan has bought nearly 63 billion dollars. % additional debt or $ 12.13 billion in first 11 months. outgoing fiscal year compared to the $ 7.4 billion the government borrowed in the same period last year.

The government has underscored its concern over increasing short- and medium-term debt repayments by borrowing more aggressively from outside sources over the past year despite a record 29% increase in remittances sent. by Pakistanis living abroad and a current account surplus.

According to Dawn, Islamabad’s debt payment requirements are not increasing because of the increase in its stock of foreign debt alone; changes in the composition of external debt, which includes replacing low-cost multilateral and bilateral borrowing with more expensive commercial purchases, also increase debt service requirements.

Moreover, the extremely low long-term non-debt-generating FDI inflows are not helping either. With little likelihood of a dramatic increase in tax revenues or exports over the next several years, the country’s dependence on foreign loans will continue.

There is a good chance that Pakistan’s dependence on expensive commercial loans from banks and international markets will increase, increasing debt accumulation and servicing – at least in the short term.

This is also accompanied by a shortage of bilateral dollars for various reasons and multilateral aid suspended due to differences with the International Monetary Fund (IMF) over the spending plans of the Pakistani government Tehreek-e-Insaf (PTI). for the next year.

Earlier this month, it was reported that the Pakistani province of Punjab’s domestic and foreign debt reached 956.4 billion rupees in June 2021, with a large chunk of 951.2 billion rupees in loans obtained from ‘international funding institutions.

According to Dawn, the World Bank Group is the largest creditor with 46 percent stake, followed by the Asian Development Bank at 25 percent. China comes in third with 24 percent and Japan contributes 3 percent to the stock of external debt, according to the budget document.

Despite increasing debt and inflation in Pakistan, its federal government led by Imran Khan has proposed to exempt all registered political parties in Pakistan from the legal requirement to submit annual income and assets while declaring their income tax-exempt, according to the budget bill. 2021.

At the same time, the World Bank on Tuesday approved funding of $ 800 million for two programs in Pakistan: the Pakistan program for clean and affordable energy and the second program to secure human investments to foster transformation.

(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)

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