Financial Crises: Government To Borrow $22bn, Surging Total Debt To $98bn!

Pakistan's debt

The Imran Khan-led government on Friday stated that it will borrow loans to stabilize the economy in the next five year. As per government, the loans are necessary to fill the gap in the economy.

Parliament demanded the government to disclose its five-year debt plan. Hence, General Abdul Rehman Warraich of Debt Office in the Finance Division shared these details.

Pakistan's debt

Source: the news

Rehman apprised the NA’s Standing Committee on Finance, that the government would borrow almost $22bn from outside by the end of June 2020.

Moreover, the borrowing will surge Pakistan’s total external debt to alarming $98bn!

Pakistan is already going through a vicious period of financial crises. The loan may make further ailments.

The state has predicted to pay back almost $8bn by June 2020. Besides, the DG also revealed that a medium-term debt strategy (MTDS) is concentrating on projection. The government assumes that a medium-term debt strategy (MTDS can be completed over the next five years.

The standing committee members showed their opinions about the measures chosen in this regard.

Briefing the committee, the DG stated that based on these courses; the government couldn’t meet all the strategic aims over the next five years since debt levels are high.

“But, we will make significant progress to our strategic targets,” he continued.

Additionally, the Finance Division has enacted long- and medium-term projections for both internal and external debt.

To illustrate, at the end of the last fiscal year, domestic debt was 66pc of the total public debt while the external deficit was 34pc.

Sadly, the government has predicted that the ratio of domestic debt will reach up to 70pc. However, they predicted that external debt may get lower to 30pc.

Nevertheless, the DG said these objectives might be unachievable due to growing financing demands. He said that this ratio is going to be graver in the next five years.

He projected that the external debt is going to be 41pc by the end of FY24 and domestic debt to be 59pc.

Pakistan’s External debt

At the end of FY19, the multilateral/two-sided debt rate was 73pc of the total external debt. The debt advanced through Euro/Sukuk bonds forms 9pc and commercial bank loans make up for the left 18pc.

“The government doesn’t want to borrow from the international commercial banks”, The DG said.

Pakistan’s Domestic debt

The DG called domestic debt a bigger challenge for the government. He said that by the end of the last financial year, internal debt has a short time of maturity. The short period forced the government to refinance an enormous amount of domestic debt.

It is evident from the data that at the end of 2019, the short-term debt ratio reached 27pc of the total domestic debt. 

Pakistan's debt

Source: Urdu Point

“We think that over the next five years, we may not be able to achieve our strategic targets due to constraints. We can only bring down the short-term debt to 20pc while the long-term debt will be improved to 55pc of the domestic debt”, DG said.

Besides, the DG said that raising the proportion of Sharia-compliant debt instruments is the preference of the state.

Currently, 99pc debt is raised by traditional instruments while only 1pc is from Shariah instruments.

“We believe in the long run, the external debt should not be more than 30pc because it creates exchange rate exposure and repayment burden for the government”, he said.

Pakistan, at this critical juncture needs, a pragmatic policy for the economy otherwise perpetual debt taking would doo the country.

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