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Thursday, May 23, 2024

Pakistan is safe from default

Pakistan’s external debt is derived from four key sources, with around 47 percent coming from multilateral loans, 31 percent from bilateral loans, 14 percent from commercial loans and 9 percent from Eurobonds/Sukuk at end December 2021.

Effective management of public debt has been a prime challenge faced by developing as well as developed countries both having different implications.

According to the State Bank of Pakistan (SBP), Pakistan’s public debt in terms of GDP declined to 83.5 percent in FY21 from 87.6 percent in FY20. The improvement in the twin deficits, along with revaluation gains due to the appreciation of the PKR against the US Dollar, helped contain the pace of debt accumulation. Notably, the addition in the country’s public debt was the lowest among international peers despite the Covid-induced increase in fiscal spending.

Read more: Growth and potential of Impact Bonds in Pakistan

The pace of expansion in public debt was the lowest since FY17. The composition of public debt further tilted towards long-term debt, while the country was also able to diversify the financing resources during FY21.

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Source: State Bank of Pakistan

The source-wise composition of external debt is depicted in the following table:

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Pakistan’s external debt is derived from four key sources, with around 47 percent coming from multilateral loans, 31 percent from bilateral loans, 14 percent from commercial loans and 9 percent from Eurobonds/Sukuk at end December 2021.

Although borrowing from commercial sources has relatively increased during the last few years, multilateral and bilateral sources still cumulatively constitute 78 percent of external public debt portfolio as of end December 2021.

Government Ijara Sukuk are medium term Shariah compliant bonds currently issued in 3 years tenor. The purpose of issuance was to raise money from Islamic banking which has grown substantially in Pakistan in past few years.

It is important to give attention to these Eurobonds which constitute a major proportion of public debt. The point has also been raised on Twitter.