In comparison to the entire FY21, when it was $13.38 billion, the country’s external debt servicing increased to $10.886 billion in the first three quarters of 2021–2022.
Compared to $3.51 billion in the first quarter of 2020–2021, it was only $1.653 billion in 1QFY22. However, the cost of debt servicing increased to $4.357 billion in the second quarter of fiscal year 2012 and to $4.875 billion in the third.
Despite an inflow of $2.3 billion from China late last month, the State Bank of Pakistan’s foreign exchange reserves have dropped to single digits, posing a major threat to the nation.
Each quarter’s external debt servicing has grown in size, which suggests that in order to meet its responsibilities to pay off foreign debt, the government has been borrowing dollars at higher commercial rates.
The rate at which the coalition led by the PML-N borrowed $2.3 billion from China wasn’t made public. Prior to the overthrow of the PTI government, Beijing had initially agreed to roll over the syndicated loans. To acquire the Chinese financing, the Shehbaz administration had to wait two months.
The financial industry and other economic stakeholders are nonetheless dissatisfied with the Chinese loan’s hidden costs. There are numerous rumours floating around the industry that Chinese loans were obtained at a very high rate.
The delivery of the $1 billion tranche has been promised to Pakistanis by Finance Minister Miftah Ismail, but three months have passed with no satisfactory response from the IMF. Bankers think that the fund is ordering Washington and other governments to take more action.
The government no longer receives project funding from the World Bank and Asian Development Bank as a result of the IMF’s withdrawal of support.
According to a prominent analyst, the Chinese were aware that Pakistan could not re-enter the international loan market and that the IMF was not in a rush to assist Islamabad. Due to this, Chinese lenders charged unusually high interest rates on their loans.
Due to Pakistan’s practice of paying debt service through commercial borrowing, the country will have to service more external debt in the upcoming fiscal year. The two governments failed to handle the $80 billion in massive imports in FY22, which resulted in a significant current account imbalance (CAD).
Mahnur is MS(development Studies)Student at NUST University, completed BS Hons in Eng Literature. Content Writer, Policy analyst, Climate Change specialist, Teacher, HR Recruiter.
