SBD-3
ELITE MEMBER
- Joined
- Sep 19, 2008
- Messages
- 15,120
- Reaction score
- -9
- Country
- Location
Will Pakistan's economy survive the maturity of $50bn in debt this year?Will Pakistan's economy survive the maturity of $50bn in debt this year?
Update: Feb 16, 2016 – In the Bloomberg report, calculations of Pakistan's total foreign debt ($120bn) and total budget for 2015-16 ($13tr) are incorrect due to which their assertions are questionable.
Despite improvement in the country's security situation and the economy growing at an eight-year high, Pakistan risks default as 42 percent of its foreign debt, around $50 billion, is due in 2016, reports Bloomberg.
Around $30 billion is due between July and September, of which $8.3 billion will need to be in foreign currency, depleting 40pc of the nation’s $21 billion in foreign-exchange holdings. But a major part of the debt due is in local currency, which leaves the government with room to introduce more short-term instruments to leverage its current liabilities.
“Pakistan’s high level of public debt, with a large portion financed through short-term instruments, does make the sovereign’s ability to meet their financing needs more sensitive to market conditions,” Mervyn Tang, lead analyst for Pakistan at Fitch Ratings Ltd., told Bloomberg.
In 2013, a $6.6 billion loan from the International Monetary Fund (IMF) was used to make payments for previous outstanding loans and avoid a Greece-like crisis. Since then, the projected debt due by end-2016 has grown by 79%.
At Rs13 trillion ($124 billion), 77% of the budget is already allocated for loan repayments this year.
A concurrent challenge is meeting IMF demands to privatize state-owned concerns, as witnessed by the strike at Pakistan International Airlines, which ended only last week.
November 2015 saw new taxes worth Rs 40 billion to meet the fiscal deficit.
In a Feb 1 statement, the Finance Ministry emphasized that Pakistan is committed to successfully implementing its IMF macroeconomic stability program, while the IMF is confident; mission chief Harald Finger said there is a “quite good” chance of implementing the guidelines provided.
Despite the grim outlook, experts are optimistic. According to Fitch’s Tang, Pakistan’s external liabilities are “relatively modest,” foreign-currency reserves have risen, the IMF is ready to help meet maturing loans and Chinese investment in an economic corridor is on its way.
“Improving growth prospects, lower inflation and smaller budget deficit should help to underpin investor confidence, particularly the domestic investor base,” Tang said.
Other risks include further capital flight and currency outflows, as well as devaluation of the rupee and fluctuations in the exchange rate. According to the IMF, the rupee is already overvalued at the current rate by as much as 20%.
Mustafa Pasha, head of investments at Lakson Investments Ltd, which manages $200 million of stocks and bonds, told Bloomberg investors should expect volatility in bonds and pressure on the rupee this year.
Although the decrease in oil prices has helped, the future remains unclear.
Rs40bn additional tax measures soon to meet fiscal deficit: IMF
ISLAMABAD / WASHINGTON: Amid rising circular debt and revenue shortfall, the government plans to introduce additional tax measures of around Rs40 billion in a couple of weeks to meet the fiscal deficit limit and carry on with the IMF programme.
This was stated by International Monetary Fund’s mission chief to Pakistan Harald Finger at a news briefing on Friday. He was assisted by Daniela Gressani, the IMF deputy director for the Middle East and Central Asia and resident representative to Pakistan Tokhir Mirzoev.
The IMF mission also had a rare session with the Senate Standing Committee on Finance and Revenue against the backdrop of the panel’s resistance to let tax-related cases covered by the anti-money laundering / counter terror financing laws.
Mr Finger said Pakistan faced Rs40bn revenue shortfall in the first quarter. “We worked out with authorities the strategy to meet fiscal deficit target and the government will take measures of that amount to bridge the gap.”
Responding to questions, he said the government had to finalise the measures in a few weeks. He agreed with a questioner that these additional measures had now become “prior action” before going into the next quarterly review.
He said the question of an increase in power tariff was not discussed but confirmed that the circular debt had gone up to Rs661bn, including payable stocks of Rs326bn and Rs335bn parked consistently with the power holding company.
The IMF had previously put the debt at about Rs615bn, including payable stocks at Rs280bn.
The mission chief, however, said the authorities had met the quarterly target on power sector’s recoveries.
Responding to a question on Pakistan’s exchange rate, Mr Finger said that based on the IMF model Pakistan’s real exchange rate was overvalued to the extent of 5 to 20 per cent depending on different scenarios.
He said some recent gains in large-scale manufacturing, pick-up in construction activities, decline in international oil prices, the China-Pakistan Economic Corridor and better foreign remittances were signs of improved economic activity but generally the investment climate had a long way to go as private sector credit had not gained momentum.
He did not agree with a perception that the government had built foreign exchange reserves through foreign borrowings and said lower oil prices had provided a cushion to the authorities to build reserves through market operations.
He, however, agreed that sustainability of the reserves had some structural challenges because of exports and global conditions.
IMF resident representative Mr Mirzoev said the fund’s global methodology recognised the government’s expenditures and revenue numbers in the fiscal deficit and the circular debt amount could not be considered a part of deficit unless they actually get transferred to the budget.
Asked if IMF loans could lead to Pakistan’s external vulnerabilities and compromise on its nuclear assets, Mr Finger said there was absolutely no link between Pakistan’s nuclear programme and IMF programme. In fact, he added, the IMF loans were resulting in reduced debt-to-GDP ratio and increasing foreign exchange reserves that would enable the country to absorb shocks and reduce its vulnerabilities.
A statement issued by the IMF headquarters in Washington said that Pakistan’s real GDP would grow by about 4.5 percent in fiscal year 2015-16.
“Economic activity continues to improve while challenges remain.”
But the IMF warned that the slowdown in private credit growth and weakness in exports and imports were “weighing on growth prospects.”
It noted that Pakistan’s gross international reserves reached $15.2bn by end-September 2015, up from $13.5bn at end-June 2015 and covering close to four months of prospective imports. The IMF said the country had also met the end-September 2015 quantitative performance criteria on the State of Bank’s net international reserves, government borrowing from the SBP, and foreign currency swap / forward position.
However, the performance criteria on net domestic assets and the fiscal deficit were missed, as was the indicative target on tax revenue.
The IMF urged Pakistani authorities to complete their reform agenda because it was critical for it to achieve its broader economic objectives, and continued effort will be important in the period ahead.
It also urged them to promote gender equality, and further expand coverage under the Benazir Income Support Programme to protect the most vulnerable.
http://www.dawn.com/news/1239706
http://www.dawn.com/news/1218083
Do you remember at the start of Nawaz Sharif government in 2013 the Circular debts where around 500 Billion , Congratulation now it has raised to 661 Billion. We are doomed for sure now.
@Kaptaan @Zibago @Basel @Zarvan @AZADPAKISTAN2009 @Doordie
September has already ended. How much panic is there? If this 50 Billion is really maturing, we would have had our Foreign Exchange Reserves evaporated by now and USD would have been exchanged at 1000 PKR.
