In the current year 2020, Pakistan has got a major facility for repayment of foreign loans and the repayment of loans of 2.41 billion has been rescheduled under the Debt Service Suspension Initiative (DSSI).
According to figures released by the World Bank, the country had to pay a total of 8.97 billion in 2020. This includes 3 billion 40 million dollars of global financial institutions, 4 billion 32 million dollars of rich countries, 850 million of foreign commercial banks and includes 362.25 million of bond holders.
However, the rescheduling of the 2.41 billion debt will bring the country’s debt payments to 6.53 billion this year. This will save 0.9% in growth rate or GDP.
It may be recalled that after the outbreak of Corona virus, Pakistan’s Prime Minister Imran Khan had demanded from international financial institutions and rich countries to reschedule the repayment of loans to less developed and poor countries. This initiative was taken by PM in order to control the economic losses and deficits caused by the corona virus.
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The World Bank, in releasing data on Pakistan and on debt rescheduling, said in a statement: “This initiative will enable the country to be more effective in responding to crises and lending resources to social, health and will be able to use it to increase economic costs.”
The IMF and the World Bank will assist in the implementation of the DSSI by “monitoring expenditures, enhancing the transparency of public debt and ensuring future lending.” Pakistan currently owes about 110 billion in external debt. In 2008, Pakistan’s external debt was 45 billion, which increased to about 61 billion in 2013 after five years.
Over the next five years, external debt reached 95 billion, reaching about 110 billion by March 31, 2020. It should be noted that this loan does not include the 2 billion loan to compensate for the economic damage caused by the corona virus, which includes 1.4 billion from the IMF and loans from other institutions.
Statistics on Pakistan’s external debt repayments show that in 2017, Pakistan paid 6.4 billion in debt and interest on it. Debt and interest payments stood at 5.8 billion in 2018, but 2019 saw a significant increase in payments when it reached 9.4 billion.
According to figures released by the World Bank, the country had to pay a total of 8.97 billion in 2020, including multilateral 3.4 billion, bilateral 4.32 billion, non-governmental 850 million and bonds holders 362.5 million.
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With a significant debt rescheduling of 2.41 billion, the country’s debt service payments will reach 6.53 billion during the year. Pakistan is the second largest beneficiary of this initiative after Angola. According to a statement issued by the World Bank, the DSSI did not cancel the 2.4 billion loan, but only deferred it to a later date.
The damage to the economy caused by Corona and the delay in repaying the loan for more than six months have been hailed by Pakistani economists as a positive development which has given a temporary boost to the country’s economy.
Commenting on the delay in repayment of the 2.4 billion loan, Dr. Hafeez Pasha, former finance minister and economist of Pakistan, said that in the current situation, it has certainly provided a temporary relief to the country which is burdened with debts. It so happens that country will not face any difficulty in external payments at present.
According to him, Corona’s reason for the delay in disbursement of funds and loans from the IMF and other international financial institutions is a total of three and a half to four billion dollars, which is a huge amount in this difficult time.
Yousuf Saeed, an economist, said the overall debt rescheduling includes repayment of funds raised through the issuance of bonds by Pakistan’s international institutions, rich countries, foreign commercial banks and bonds. According to Yousuf, the current state of the economy in Pakistan due to the Corona and the difficulties faced by the country in repaying loans can be considered as a good development.
Pakistan has welcomed the move to delay the repayment of the loan as it would make it easier to allocate resources for epidemic-affected lives. However, Moody’s rating agency recently put the country on a negative watch after Pakistan applied for a debt suspension. While economists consider the delay in debt repayment a good development, they have not ruled out the downside.
According to him, applying for a country’s debt repayment and its subsequent delay leaves a bad impression on the country’s international credit rating, which can hamper long-term financing. In this regard, Dr. Hafeez Pasha said that the implications of delay in repayment of loans should also be taken into consideration as it creates a negative impression at the international level that the country’s economic condition is bad and it is not repayable.
Due to this perception, international credit rating agencies downgrade the country’s rating, making it difficult to obtain financing in the future. Dr. Pasha said that with a negative credit rating, foreign commercial banks are reluctant to lend, while on the other hand, it is difficult to raise money from the foreign market through bonds because international investors have low repayment capacity. They are reluctant to lend the money.
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At the request of the DSSI from the World Bank and the International Monetary Fund (IMF), global lenders have been asked to suspend repayment of loans to the poorest countries in order to cope with the effects of the corona virus.
In April, the World Bank’s development committee and G20 finance ministers backed a call for the release of the poorest countries’ resources.
According to Dr. Pasha, when the G20 announced the rescheduling of loans from various countries, Pakistan was also involved, but Pakistan was placed with poor African countries such as Chad and Congo, although Pakistan considers itself a middle-income country.
Such a situation can in no way be considered good for the country’s international credit rating.
In this regard, Yousuf Saeed said that the biggest negative effect of credit rating is on raising money through commercial banks and bonds that the country is not capable of repaying the loan so it will not be given a loan.
Dr. Pasha said that despite the delay in repaying the loan, the country’s economy is currently in crisis. “The gradual rise in the value of the dollar in three to four weeks is proof that our trade deficit is widening,” he said. Exports are not increasing but imports are increasing which is increasing the value of the dollar.
In this regard, Yousuf Saeed said that our biggest problem is the shortage of dollars from which we have to borrow so that we can make external payments.
The dollars come from exports, remittances and foreign investment in the country, of which Pakistan’s performance is not yet significant.
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