The dire warnings of a 100 billion dollar debt mark are coming to pass
Pakistan’s external debt crossed $100 billion by the end of January 2019. It now stands at just over $101 billion. The level of external debt was $95.3 billion at the start of the current financial year. In seven months, it has increased by $5.7 billion.
Debt From Friendly Countries
A large part of the increase in gross inflow of external borrowing since June 2018 is in the form of support mobilized from friendly countries. This includes $2 billion of budgetary financing by China. Moreover, $3 billion were from Saudi Arabia and $1 billion initially from the UAE in the form of deposits with the SBP.
In addition, $2.5 billion has been obtained from traditional sources like the multilateral agencies and bilateral sources. Further, incremental borrowing by the banks and the private sector is estimated at under $1 billion.
Therefore, the overall level of borrowing from June 2018 to January 2019 is $9.5 billion. The external debt repayment during this period is estimated at $3.8 billion, thereby suggesting an increase in the level of external debt of $5.7 billion.
Sharp Increase In Rate of External Debt
The rate of increase in the external debt has jumped up sharply in recent months. The rise on a monthly basis since June 2018 is close to $830 million. At this rate, the annual increase in 2018-19 will approach $10 billion.
As such, by the end of June 2019, Pakistan’s external debt could approach $106 billion.
The PML (N) Government has been accused of being recklessly extravagant in external borrowing during its five year tenure. Cumulatively, the external debt of Pakistan increased by $34 billion in these five years. This implies an annual average increase of almost $ 6.8 billion.
The Year 2018-19 Is Likely To Witness A Rise In the Level of External Debt of Almost $10 billion
This is substantially greater than the average annual increase from 2012-13 to 2017-18. It is attributable to the enormously increased pressure to finance the extremely large current account deficit, which was $19 billion in 2017-18 and may came down $13 billion this year if the recent decline in imports and rise in exports persist.
There is need to highlight the current situation of the external debt to GDP ratio of Pakistan which is highly disproportionate and unserviceable. This was 25 percent of the GDP in 2012-13 at the end of the tenure of the PPP government. By 2017-18, it had gone up to 30 percent. Now, with the big absolute increase, the debt to GDP ratio is likely to reach 38 percent of the GDP in 2018-19. The rise is magnified by the sizeable devaluation of the rupee which has reduced the dollar value of the GDP.
Comparison with India and Bangladesh
The exceptional debt burden of Pakistan can be highlighted by comparison of the external debt to GDP ratio with that of India and Bangladesh. The ratio was 20 percent in India and 19 percent in Bangladesh as compared to Pakistan at 28 percent in 2017. As highlighted above, it could approach 38 percent by the end of 2018-19.
The country is truly in the ‘external debt trap’ and the scenario for 2019-20 is full of daunting challenges.