As external debt obligations loom, the government outlines strategies to secure financing and stabilize the economy amid ongoing vulnerabilities

Pakistan’s financial landscape faces significant challenges as the government projects over $100 billion in external debt maturity from fiscal years 2025 to 2029. This alarming figure emerged during a National Assembly Standing Committee on Finance meeting, where Mohsin Mushtaq, the Director General of Debt, informed members that friendly nations would roll over $12.7 billion in the current fiscal year. This rollover includes $5 billion from Saudi Arabia, $4 billion from China, $3 billion from the UAE, and $0.7 billion from Kuwait.

The committee’s session, which focused on the International Monetary Fund (IMF) agenda, underscored that Pakistan’s financial requirements exceed the existing IMF bailout package. Sources indicated that while $7 billion is expected from the IMF, an additional $5 billion needs to be sourced from commercial banks and other lenders.

As of June 2024, Pakistan’s total public debt stood at Rs71.2 trillion, comprising Rs47.2 trillion in domestic debt and Rs24.1 trillion in external debt. The budget for the current fiscal year was prepared at an average policy rate of 17.2%, a rate anticipated to decrease, potentially offering significant relief for domestic debt.

Despite recent increases in foreign exchange reserves, now at $9.5 billion, the external account remains fragile. Although the debt-to-GDP ratio improved from 75% to 67.2%, total loans surged from Rs62.88 trillion in fiscal year 2023, indicating a troubling trend.

This year, the country faces external payments of $18.83 billion, escalating to $9.23 billion in 2026, $8.71 billion in 2027, $7.68 billion in 2028, and $6.88 billion in 2029, not including repayments to friendly nations.

Minister of State for Finance Ali Pervaiz Malik acknowledged the vulnerabilities within Pakistan’s external account, emphasizing the importance of securing funds and implementing necessary reforms. The committee learned that the government must arrange over $100 billion in external financing over the next five years to meet these obligations.

Omar Ayub Khan referred to the situation as a “perfect storm” amidst geopolitical tensions that may drive up dollar and oil prices. Hina Rabbani Khar remarked that Pakistan’s economy remains in critical condition due to a lack of sustainable economic strategies.

To stabilize the economy and promote growth, the government is pursuing fiscal discipline and structural reforms. These reforms include broadening the tax base and reforming Public Sector Enterprises (PSEs) to reduce dependency on debt.

Key goals of public debt management moving forward include:

1. Expanding the investor base and improving domestic debt capital markets.
2. Extending the maturity profile of both domestic and external debt.
3. Enhancing coordination with domestic and international investors.
4. Developing the non-bank sector, including pension funds and Shariah-compliant markets.
5. Completing actions related to multilateral program loans.
6. Improving National Saving Schemes to mobilize savings effectively.
7. Engaging in international capital markets through various bond issuances.

The committee raised pertinent questions regarding the composition of debts and the conditions set by lending countries. The minister highlighted major lenders like Saudi Arabia, Australia, China, and Russia, affirming the importance of a robust debt management plan.

While the committee acknowledged some of the government’s measures, concerns were raised about recent tax reforms causing unrest among traders. The committee resolved to facilitate dialogue between traders and the government to address these concerns.

The meeting concluded with a commitment to enhance collaboration and fiscal discipline, aiming for a more stable economic future.

Analysis:

Political: The external debt situation reveals the complexities of Pakistan’s political landscape, particularly in terms of governance and international relations. The government’s dependency on foreign loans underscores its challenges in establishing a robust domestic economic policy, leading to questions about political accountability and strategic planning.

Social: The looming debt repayment obligations are likely to impact public sentiment and social stability. Citizens may become increasingly concerned about how these debts affect public services and living conditions, highlighting the need for transparency and communication from the government.

Economic: The urgent need for over $100 billion in external financing underscores the fragility of Pakistan’s economy. The government’s plans to implement structural reforms are crucial for reducing debt dependency and fostering sustainable economic growth. However, success hinges on effective execution and broad-based participation in the reform process.