Rising debt servicing expenses prompts debt spiral

Pakistan’s external borrowings have soared to $10.7 billion during the fiscal year 2017-18, as the country grapples with massive challenges on the macroeconomic front on account of twin deficits pertaining to the fiscal and external sectors.

In the last two fiscal years, the government has cumulatively borrowed $22.7 billion to cater for the gap between expenses and revenue generation.

According to the Economic Affairs Division of the Ministry of Finance, during the fiscal year 2018, government borrowings from commercial banks reached $4.15 billion, compared to $4.7 billion borrowed from commercial banks during the fiscal year before that (2016-17).

Out of the total loans taken by the government, borrowings from Chinese banks stood at $2.2 billion, while those from multilateral donor institutions stood at $3.8 billion. Likewise, during the fiscal year 2017, the government had borrowed $4.65 billion from multilateral agencies.

In addition to that, the government in its attempt to raise funds to meet the gap with regard to its financing needs, sold Eurobonds and Sukuk bonds worth $2.5 billion in the fiscal year 2018. A year before that, fund raising through the sale of bonds was standing at $1 billion.

The newly elected government, cognizant of these facts, has complained on multiple occasions of the high debt servicing expenses that the country has had to bear on account of maturing payments for previous borrowings.

According to the State Bank of Pakistan, during the fiscal year 2018, the repayment of principal on debt previously taken stood at close to Rs 366 billion, while during the fiscal year before that, such principal repayments totaled close to Rs 465 billion.

Interest payments on the external debt taken, on the other hand, during the fiscal year 2018, stood at close to Rs 243 billion, while during the prior fiscal, the country made interest payments on external loans worth Rs 161 billion.