Pakistan’s external debt to climb to $103b by June 2019: IMF report

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ISLAMABAD, MAR 16 (DNA) – The International Monetary Fund (IMF) has assessed Pakistan’s gross external financing needs at a record $27 billion for the next fiscal year, but warned that arranging the financing at favourable rates will now be a challenge due to risks to the country’s debt sustainability.

In its post-programme monitoring report, the IMF also forecast that due to additional borrowings, Pakistan’s external debt would jump to $103.4 billion by June 2019, up from this June’s projected level of $93.3 billion.

Despite changing goalposts twice, Pakistan’s public debt would remain higher than the limit prescribed in the revised Fiscal Responsibility and Debt Limitation Act, showed the IMF report.

“Risks to public debt sustainability have increased since the completion of the EFF (Extended Fund Facility) programme. Public and publicly-guaranteed debt is expected to remain elevated at 68% of GDP by FY23,” the IMF said.

Gross fiscal financing needs will likely exceed 30% of GDP from 2018-19 onwards, in part reflecting increased debt service obligations, it added.

However, the more alarming part is the growing challenges to arranging foreign loans. It said Pakistan had so far remained successful in contracting external borrowing that softened the impact of rising external imbalances on foreign exchange reserves.

“While the level of external debt has remained moderate, continued mobilisation of external financing at favourable rates could become more challenging in the period ahead against the background of rising international interest rates and increasing financing needs,” said the IMF.

It said continued scaling up of CPEC investments could accelerate the build-up of related external payment obligations, adding Pakistan’s capacity to repay could deteriorate at a faster pace, with faster depletion of foreign exchange reserves having adverse effects on economic growth.

Debt levels are higher than envisaged during the 2017 Article IV consultation, largely reflecting a significantly higher fiscal deficit.

The IMF’s projections show a bleak path for the next five years. Public and publicly-guaranteed debt is projected to remain close to 70% of GDP by 2023 under the baseline scenario.

“In the absence of strong consolidation measures, the fiscal deficit is expected to remain close to 6% of GDP in the medium term, resulting in elevated debt levels,” it added.