Foreign loans worth $2.33bn rescheduled under G20 DSSI in FY21

March 25, 2022 (MLN): Under the G20 Debt Service Suspension Initiative (DSSI) framework, Pakistan, during the financial year 2020-2021, has managed to get $2.33 billion debt rescheduled out of total expected debt rescheduling of $3.79bn, for which 54 agreements with a total of 21 bilateral creditors have been signed and the remaining agreements are under negotiation, the latest yearbook 2020-21 by Ministry of Economic Affairs showed.

In the wake of the Covid-19 pandemic, the G-20 announced DSSI framework which allowed developing countries to seek debt relief through rescheduling their principal and interest payments due to its bilateral creditors between the period from May 2020 to December 2021.

The government applied for debt rescheduling under the G-20 DSSI framework to avail a total suspension of US$ 3,785mn (estimated) in this period. It was primarily due to this initiative that debt servicing to bilateral creditors amounted to merely 4.46% of the total debt servicing made in the Financial Year 2020- 21.

During FY 2020-21, the government of Pakistan signed new agreements worth $15,316mn with various bilateral and multilateral development partners, State Administration of Foreign Exchange (SAFE) Authority China, and Foreign Commercial Banks, and received disbursements worth $13,547mn from bilateral and multilateral partners, SAFE Authority China, Foreign Commercial Banks, IMF and Eurobonds.

EAD is responsible for making timely debt-servicing (principal repayments and interest payments) of foreign loans. Actual debt servicing of foreign loans during the financial year 2020-21 amounted to $7,397mn, comprising $7,267mn central loans and $130mn guaranteed loans.

Central loans were 98.24% of the total debt servicing of external loans. Out of the total debt-servicing of $7,397mn, $5,912mn comprised principal repayment and $1,485mn constituted interest payments. About 4.46% ($330mn) of the total debt- servicing went to the bilateral creditors and 95.54% ($7,067mn) to the multilateral creditors. About 89.20% ($6,599mn) was against medium & long-term loans while 10.79% ($798mn) was against short-term loans.

The report highlighted that in FY 2020-21, the relending policy was revised to cut down any interest and exchange risk cost levied by the Federal Government, to the effect that loans shall now relent on the same terms and conditions as those on which borrowed by the Government of Pakistan and the Exchange Risk Cover passed on to the borrower.

EAD relents loans to provincial governments, federal government departments, autonomous bodies, and Development Financial Institutions (DFIs) as per approved Re-lending Policy. During the financial year 2020-21, recovery of foreign relent loans amounting to Rs128,337.198mn, comprising Rs90,393.143mn principal and Rs37,944.055mn interest (inclusive of Exchange Risk Fee) was affected.

Besides the above, an amount of Rs857.388mn has also been recovered during 2020-2021 pertaining to the previous period. The total recovery during the period under report thus comes to Rs129,194.586mn.

The report noted that the government charges a guarantee fee at the rate of 0.5% p.a. on the loan amount disbursed and outstanding from borrower agencies against their direct loans guaranteed by Finance Division.  During FY21, the guarantee fee amounting to Rs19.331mn had been recovered.

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