Foreign Affairs. Geopolitics. National Security.
MENU

Pakistan’s external debt likely to increase as dependence on foreign loans continues

Wed, 30 Jun 2021   |  Reading Time: 2 minutes

Islamabad [Pakistan], June 30 (ANI): Pakistan’s external debt is likely to increase in the near future as it is under compulsion to borrow more and more every year to repay its outstanding external loans, finance its current account and build its forex reserves.

Over the last 15 years or so, the country’s external debt and liabilities have grown at a varying pace but no effort made during this period succeeded in containing the exponential increase in the burden, Dawn reported. This is evident from the over 150 per cent growth in foreign debt and liabilities to USD 116.3 billion from USD 45.4 billion at the end of Financial Year 2008. Moreover, Pakistan purchased nearly 63 per cent more debt or USD 12.13 billion in the first 11 months of the outgoing fiscal year compared to USD 7.4 billion the government had borrowed during the same period last year.

The government has underscores its anxiety over the rising short- to medium-term debt payments by borrowed more aggressively from external sources during the outgoing year despite a record 29 per cent jump in remittances sent home by Pakistanis living abroad and a current account surplus. According to Dawn, Islamabad’s debt payment requirements are not surging because of its increasing foreign debt stock alone; the changing composition of external debt, which includes the replacement of low-cost multilateral and bilateral borrowings with more expensive commercial purchases, is also increasing debt-servicing requirements.

Moreover, the extremely low flows of non-debt-creating, long-term FDI are also not helping. With little likelihood of any dramatic jump in tax revenues or exports in the next few years, the country’s dependence on foreign loans will continue. Chances are that Pakistan’s dependence on costly commercial loans from international banks and markets will increase, escalating debt accumulation and servicing — at least in the short run.

This also comes as bilateral dollars in short supply for various reasons and multilateral assistance on hold because of the differences with the International Monetary Fund (IMF) over the Pakistan Tehreek-e-Insaf (PTI) government’s spending plans for the next year. Earlier this month, it was reported that the domestic and external debt of Pakistan’s Punjab province reached Rs 956.4 billion as of June 2021 including a major chunk of Rs 951.2 billion loans obtained from international funding institutions.

According to Dawn, the World Bank Group is the leading creditor with 46 per cent share followed by the Asian Development Bank at 25 per cent. China comes third with 24 per cent and Japan contributes 3 per cents shares in the external debt stock, according to the budget document. Despite rising debt and inflation in Pakistan, its Imran Khan-led federal government has proposed to exempt all registered political parties of Pakistan from the legal obligation of submitting their annual income and wealth records while also declaring their incomes tax-free, according to Finance Bill 2021.

Meanwhile, the World Bank on Tuesday approved USD 800 million in financing for two programs in Pakistan–the Pakistan Program for Affordable and Clean Energy and the Second Securing Human Investments to Foster Transformation. (ANI)


Chanakya Forum is now on . Click here to join our channel (@ChanakyaForum) and stay updated with the latest headlines and articles.

POST COMMENTS (3)

AxeGuy

Aug 09, 2021
@Ashok Iyer — I appreciated reading your succinct summary and insights. Thank you.

URL

Jul 19, 2021
... [Trackback] [...] Read More: chanakyaforum.com/pakistans-external-debt-likely-to-increase-as-dependence-on-foreign-loans-continues/ [...]

ASHOK IYER

Jul 01, 2021
Have all the international lenders (including the US & China) overplayed their hand in Pakistan? The US had to invest heavily in Pakistan, both financially & militarily, during the cold war era to counter the Soviet Union. China had to invest heavily in Pakistan to counter the US & India & also to create an easier access rout to the middle east & central Asia. In each case the investing / lending party knew that they will not be able to financially recover their loans / investment in Pakistan. I wonder if any of these parties had a plan to counter a highly radicalized & unstable Pakistan. Over the past many decades, the ever increasing grip of the Military Establishment on Pakistan’s functioning & the astronomical levels of corruption in the country has ensured that Pakistan will never be able to stand up on its own feet & will be perpetually dependent on foreign aid for its survival. China has made the same mistake as the US by overinvesting in Pakistan, both financially & militarily, and turning a blind eye towards the misdemeanours of its military elite & the ISI. So, what happens if, economically speaking, Pakistan goes bust?? It will be impossible to financially recover your money from a nuclear armed country infested with radical nutcases & mired in internal chaos. Taking control of mortgaged assets inside Pakistan in such a scenario will be a hornets nest that’s too hot to handle even for the most formidable power houses in the world. Agreed that Balochistan is imbedded with an abundance of mineral resources but accessing the same will be an expensive option on account of these violent radicals in that area. A large proportion of the ire of radical groups in Pakistan will be aimed at the US, India & China. It’ll be in India’s interests to work out a plan to cultivate these radical groups so that their ire is directed more towards China rather than India.

Leave a Comment