Karachi: Pakistan’s central bank has warned that the country faces a significant foreign debt obligation of $10 billion in June and July 2024, which is putting pressure on the government to secure loan rollovers and arrange financing to meet the deadline.
The current foreign exchange reserves stand at $9 billion, which is lower than the upcoming debt payment, leaving little room for the government to settle debt or liberalize imports to stimulate the economy.
In an interview, Maaz Azam, Head of Research at Optimus Capital Management, recalled that Pakistan borrowed $3 billion from friendly countries, including Saudi Arabia and the UAE, between June and July last year. This was followed by the receipt of the first $1 billion tranche of International Monetary Fund loans in July 2023, which boosted foreign exchange reserves to around $8 billion from $4 billion in June 2023.
Pakistan’s foreign debt repayment obligations are expected to be a significant challenge in the coming months, with a total of $27.52 billion needed to be repaid and rolled over between May 2024 and April 2025.
According to the State Bank of Pakistan and JS Global Research data, the country is expected to repay $1.72 billion in May 2024, followed by a massive repayment of $10.21 billion in June and July 2024.
In June 2024 alone, Pakistan is expected to repay around $6.7 billion in principal debt, with $4 billion of that amount expected to be rolled over, according to Maaz Azam, Head of Research at Optimus Capital Management. The government is also expected to secure the next IMF loan program of $6-8 billion for three to four years, which will help ensure foreign debt repayment without interruption and provide financing for imports.
The multilateral and bilateral assistance of $4 billion received in June and July 2023 may be part of the potential rollover and repayment in June and July 2024. The country’s foreign exchange reserves currently stand at $9 billion, leaving little room for error in meeting these debt obligations.
The data revealed that Pakistan’s total debt obligation for the next 12 months is a staggering $27.52 billion, with $23.95 billion in principal loan repayment and $3.57 billion in interest costs. Maaz Azam, Head of Research at Optimus Capital Management, noted that the government is currently in talks with the International Monetary Fund to secure a new loan program after the previous standby arrangement of $3 billion expires in April 2024.
The new IMF program will reportedly provide loan rollovers and repayments for the next three to four years, which will cover the duration of the bailout package.
However, Azam warned that the IMF’s conditions for the program will be strict, including increases in energy tariffs, rupee depreciation, and elevated interest rates, which will put pressure on economic activities due to the country’s limited foreign exchange reserves.
Some economists have opposed the new loan, citing concerns about increased inflation and poverty, and instead advocating for a homegrown economic roadmap to address the economic and financial crisis. However, any delay in securing the loan will increase the risk of default on foreign debt and put pressure on the rupee against the US dollar and other foreign currencies.
The IMF has forecast that the Pakistani currency will depreciate to Rs329 against the dollar by 2024-25, compared to its current rate of Rs278/$. However, the government disputes this forecast, estimating a rupee-dollar exchange rate of Rs295/$ for the FY25 budget.
