World News | Pakistan’s debt sustainability indicators worsen, public debt rises sharply in past 6 months

Islamabad [Pakistan]3rd April (ANI): Pakistan is in the midst of a severe economic crisis with sharp currency depreciation and rising interest rates, with its key debt sustainability indicator deteriorating markedly in the first half of the fiscal year, according to the semi-annual debt bulletin of the Ministry of Finance, according to the Tribune reported.

According to the report, the report for July to December 2022 shows that the proportion of external debt has increased in the past six months, and the average maturity time and interest rate reset cycle have further shortened.

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The Tribune showed that foreign debt as a share of total public debt rose to 37.2 percent in December from 37 percent in June, exacerbating currency risks amid a weakening rupee and foreign reluctance to lend.

Historically high interest rates and a 56% currency devaluation have coincided since the current government came to power a year ago, according to The Express Tribune.

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“Massive external payments in the face of low reserves could create liquidity problems and even destabilize the exchange rate, which in turn would increase the burden of external borrowing in domestic currency,” the report said.

Every six months, the Debt Office publishes a semi-annual debt bulletin containing information on debt stocks, debt operations and sources of changes in debt stocks.

According to the Debt Bulletin, in US dollar terms, as of December, Pakistan’s total public debt was $233 billion, of which public external debt was $86.6 billion. The country needs to repay 28% of its debt in just one year, a substantial portion that will expose the country to various debt-related risks.

Floating rate domestic debt is now at Rs 22.5 trillion, or 68% of domestic debt, which is toxic as interest rates hit a record 20%.

In rupee terms, public debt jumped to Rs 52.7 trillion – an increase of Rs 3.6 trillion in the first half of the fiscal year. The rupee depreciation boosted public debt by 2.3 trillion rupees in six months, a 63 percent increase in debt during the period, the report said.

Interest payments in the first half of the fiscal year amounted to 2.27 trillion rupiah, equivalent to 72 percent of the surge in public debt during the period, Tribune Express reported.

While the government is not leaning toward debt restructuring, deteriorating indicators combined with a lack of sufficient foreign funding suggest that Pakistan will soon have to go down that path.

The Ministry of Finance said controlling foreign debt risk was important to manage exchange rate risk. “The depreciation of the rupee against international currencies over the past four years has resulted in foreign debts being worth more when converted into local currencies.”

The report also showed that the average maturity of domestic loans has shrunk from four years to one and three-and-a-half years. It’s also riskier and would leave the country dependent on commercial banks to take advantage of the situation, The Express Tribune reported.

“Given the current interest rate environment, demand for domestic debt remains largely skewed toward short-to-medium-term government securities,” the report said.

In another notable deterioration, fixed-rate debt fell from 26% of domestic debt to just 22.6%, increasing interest rate risk. According to The Express Tribune, this comes at a time when the central bank is set to raise interest rates significantly.

Commercial banks hold a total of Rs 17.1 trillion or 52% of government debt and are now a source of exploitation. Despite currency manipulation, the government appears unable to impose penalties on some of these banks. About Rs 15 trillion or 28% of the total debt is due within a year and has to be refinanced. This includes a portion of foreign debt, it said.

Meanwhile, Finance Minister Ishaq Dar said on Friday that the country should learn to live with or without the IMF – comments that have caused confusion over the government’s intentions to revive a derailed $6.5 billion bailout, according to Forum Express reported.

The Treasury said the average maturity of foreign debt had shortened due to the shorter maturities of loans from foreign commercial banks and deposits from friendly countries. (Arnie)

(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)