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Pakistan’s debt at $90 billion

Discussion in 'Pakistan Economy' started by ArsalanKhan21, Dec 28, 2015.

  1. ArsalanKhan21

    ArsalanKhan21 SENIOR MEMBER

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    Pakistan’s debt situation not a pretty picture - The Express Tribune

    Pakistan’s debt situation not a pretty picture
    By Tehreem Husain
    Published: December 28, 2015

    KARACHI: Renowned economist and former finance minister recently rang a warning bell on Pakistan’s external debt position.

    According to his estimates, external debt would reach a whopping $90 billion in the next four years and the country would need $20 billion a year just to meet its external financing requirements. Not only would this adversely impact macroeconomic sustainability, but would have a negative impact on growth as well.

    Pakistan’s external debt set to grow to whopping $90b

    Economists have argued that reasonable levels of external debt that help finance productive investment may enhance growth but beyond that, additional levels of indebtedness may cause to reduce it.

    Countries have faced severe external debt crises and there have been instances of sovereign debt defaults since 1800. More recently, during the 1980s several countries faced high debt levels and repayments became impossible.

    In a seminal paper by Carmen Reinhart and Kenneth Rogoff, the authors have attempted to count all the sovereign defaults from 1800 to early 2000s. They count more than 250 instances of sovereign defaults in 200 years — an average of more than one a year.

    Various factors have been attributed to this phenomenon. Reversal of global capital flows, weak revenues and rising interest rates are some of the few reasons which can potentially cause this.

    Pakistan’s external debt situation

    Currently as of September 2015, Pakistan’s external debt stands at $66.5 billion.

    External debt is primarily comprised of public debt (government debt, debt from IMF and foreign exchange liabilities), public sector enterprises (PSEs), banks, private sector debt and debt liabilities to direct investors.

    Of this total external debt, nearly 84% is public debt. This debt is primarily long term in nature acquired from various multilateral organisations.

    International Debt Statistics compiled by the World Bank has claimed that for 2014 almost 55% of external debt in the country is denominated in US dollars.

    Moreover, the interest rate for all creditors is 4.3% with a maturity of 17 years. Grant element of this debt has been significantly reduced and stands at 37% which went as high as 66% in 2011.

    Regionally, India has a much larger external debt position amounting to $482.9 billion.

    Although Pakistan’s external debt is much smaller in magnitude compared to its neighbour, it has been consistently increasing.

    It is significant to note that in a period of nine years from June 2006 to June 2015, the increase in external debt has been 75%.

    Under the carpet? Govt applies creativity to measure debt pile

    With limited increase in our export base and rising external debt stocks, the ratio of external debt to exports has been creeping up since 2012 and has reached 200% in 2014. Debt servicing to exports has also been rising over the years and stands at 19%in 2014.

    Debt sustainability is key

    Debt sustainability is a critical issue and one that is key to overall macroeconomic stability.

    The joint World Bank-International Monetary Fund Debt sustainability framework was introduced in 2005 and is periodically reviewed. It was conducted most recently in 2012 with the next review being scheduled for 2016.

    This framework for debt sustainability analysis has three broad policy objectives. One is to assess the current debt situation, its maturity structure, whether it has fixed or floating rates and by whom it is held.

    Secondly, to identify vulnerabilities in the debt structure so that policy advice can be introduced before payment difficulties arise and lastly to examine the impact of alternative debt stabilising paths.

    Disclosure on debt to all policymakers is key to making decisions that are critical for macroeconomic stability. Recently, the governor of the central bank of the country also hinted on this point when he said that the government should clarify regarding the composition of the much touted investment of China Pakistan Economic Corridor (CPEC) in terms of how much is equity and what proportion is debt.

    Importance should be paid not on the magnitude but rather the efficiency of investment. Furthermore, our policymakers should pay serious attention towards debt sustainability before it balloons itself to be unmanageable. Pakistan’s debt to exports ratio of 200% is quite high.

    IMF studies have pointed out that halving debt to exports ratio from about 200% of exports to about 100% would boost per capita growth by about 0.5-1%.

    Lesser developing countries like Pakistan with weak institutions and policy structures face greater repayment issues and, therefore should pay great emphasis on the implementation of debt sustainability frameworks to avoid any future crises.

    The writer is an economist and ex-central banker

    Published in The Express Tribune, December 28th, 2015.

    Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
     
  2. Viper0011.

    Viper0011. SENIOR MEMBER

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    The debt it high because what was supposed to happen in the past 70 years, is all of a sudden happening now. So if you spread the debt over the 70 years (growth related), you would've finished a few projects in the 60's, 70's and 80's, and post going live, you would've captured income which would've offset the debt over the years (decades and that too like 6-7).

    So all things are being tackled in this term of the local government. Electricity, Infrastructure, CPEC, Privatization, Tax system overhaul, Metro projects, Airports, Port Operations Expansion, Military Ops in FATA, Power plants and alternative energies, Healthcare, Education, Industrial expansion, etc, etc, everything has been ignored for the past 7 decades.

    You won't find a country who just in on 5 year terms deals with all the above things. So its almost like Pakistan was born in 2013 and now its the first government doing all this work to a new country. So naturally debt will be higher. But by 2020, the Pakistani economy would be over 600 - 700 Billion (GDP), so a $ 150 billion debt (being slowly paid off, would be 15% of the GDP). Which isn't bad. Growing countries could have up to 40-50% of debt. India ran on 45-50% of debt for the longest time, and still has high debt. That's how a poor country grows and establishes more businesses and expands infrastructure and economy!
     
  3. RoadRunner401

    RoadRunner401 SENIOR MEMBER

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    I don't know, what these people are talking about, we are told by our finance minister:big_boss: our reserves are growing. :omghaha:

    Good news is same idiots that, keep electing these 2nd grade failed leaders, who can't even add two plus two to run the country will have to pay the price. :pakistan:
     
  4. Vapnope

    Vapnope SENIOR MEMBER

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    No govt has done a jack about dying economy. Everybody is filling his pockets, and people of Pakistan will have to pay the price.
     
  5. dadeechi

    dadeechi BANNED

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    There is nothing worrying here.

    Currently as of September 2015, Pakistan’s external debt stands at $66.5 billion and forecasted to reach $90 billion in the next four years

    Of this total external debt, nearly 84% is public debt. This debt is primarily long term in nature acquired from various multilateral organisations

    Regionally, India has a much larger external debt position amounting to $482.9 billion.
     
  6. marbella

    marbella FULL MEMBER

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    u may pls add us which has trillions..
     
  7. Zaki

    Zaki SENIOR MODERATOR

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    The figures are similar to the thread I created in early 2014 with similar projections... but I think it is no longer a major source of concern for us after we estimate growing GDP with same or higher proportion.

    A country with 30 billion dollars of debt with total GDP of 80 billion USD is better off with 100 billion dollars of debt with 500 billion dollars of GDP
     
  8. A.M.

    A.M. SENIOR MEMBER

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    How can you write an article about increase in Debt and not mention the word "GDP" even once?
     
  9. mirage

    mirage FULL MEMBER

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    quality of debt is important but the amount .
     
  10. Shotgunner51

    Shotgunner51 RETIRED INTL MOD

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    Yes the FX reserves is in fact growing, reaching $19.8282 billion by 20 Nov 2015. Check central bank data:
    http://www.sbp.org.pk/ecodata/FER/2015/Forex-20-Nov-15.pdf

    Like reserves, debt is only one side of the balance sheet, check full picture of external position here:
    http://www.sbp.org.pk/ecodata/Invest-BPM6.pdf

    By end 2015 Q3 net position for Pakistan was negative $71.413 billion. A negative position doesn't necessarily means bad (some "developed" countries are also major debtor nations e.g. US, PIIGS), it's very normal when investments are needed to boost economic development. If the investments become good assets that are rewarding enough to service the debt payments, then there is no problem. Otherwise if proceeds say are turned into non-performing assets, or simply wasted/burnt, then it's troublesome.
     
    Last edited: Dec 29, 2015
  11. Zaneesh852

    Zaneesh852 FULL MEMBER

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    Tribune hires many names on their notional value. She has had a good jumpstart being the niece of Ex-Governor SBP Ishrat Hussain during her career as an economist. Her husband is a friend of mine, but he is far better economist than her, and perhaps thats why he doesn't write for Tribune. The best economic journalism team is with Biz Recorder. Tribune has been employing "Dang Tapao" team for their business and economy section.
     
  12. A.M.

    A.M. SENIOR MEMBER

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    Btw OP didn't even read the article, Pakistan's debt is at 67B. It is set to grow to 90B over the next four years.


    :coffee:
     
  13. dadeechi

    dadeechi BANNED

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    Exactly

    Pakistan
    GDP : $270 billion
    Debt : $66 Billion
    Ratio : 24%

    India: $2000 Billion
    Debt : $439 Billion
    Ratio : 21%

    Read response here

    Pakistan’s debt at $90 billion
     
  14. Khafee

    Khafee BANNED

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    What my concern is, how much of this debt is in the pocket of politicians, and what is being done to recover it?
     
  15. dadeechi

    dadeechi BANNED

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    Ofcourse quality of Debt is important.
     
  16. Great Sachin

    Great Sachin BANNED

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    what is forex reserve vs debt ratio