Muhammad Omar
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The Ministry of Finance has contradicted a news report carried by Bloomberg News Agency on Pakistan’s debt obligations and termed it a misleading report and not based on facts.
A statement issued by the Ministry of Finance on Tuesday said that Bloomberg News Agency had carried a misleading report on the debt situation of Pakistan.
“It is unfortunate that despite repeated interactions to correct the factual errors in their report, the agency chose to ignore the clarification and wrote a report not based on factsj,” the statement of the Finance Ministry said.
The statement further said that the report had thus created an impression about Pakistan’s debt profile which was conjectural and contrary to the actual situation.
The ministry’s statement noted that the headline implied that Pakistan’s External debt of $50 billion was maturing in one year, which was factually not correct.
The statement further clarified that Pakistan’s total external public debt was $50.9 billion on end-June, 2015, maturing over the next 40 years.
It further clarified that out of the total debt, around $4 billion was maturing in 2016 and $2.8 billion in 2017.
The Finance Ministry said that the External public debt also included Eurobonds of $4.6 billion out of which only $500 million was maturing in March 2016 and $750 million in June 2017.
“The risk of default is never on the domestic debt but only on the external one. Therefore, the headline number of $50 billion is highly misleading. Such a statement from a highly respected news agency is disconcerting,” the Finance Ministry’s statement said.
It added that the obligations maturing during the year were fully covered by reserves as well as the planned build-up during the year.
Pakistan, the statement said had successfully tapped international capital markets three times during the last 30 months and each time it had received oversubscription to its offers.
The Finance Ministry’s statement noted that Pakistan returned during this year to the international capital market after 7 years and was now a regular issuer of its debt. During this period its credit rating had been enhanced, it added.
Pakistan, the statement said, had only accumulated an additional $3.8 billion of external debt during the tenure of this government since the middle of 2013.
“On the other hand it has accumulated reserves of nearly $21 billion from a dismal level of $7.5 billion on end-February 2014. Thus it is fallacious to claim that Pakistan has built reserves on the back of short-term borrowings,” the statement said.
“Having recently completed the 10th Review under the IMF programme, it has been repeatedly emphasized by the Fund that the risks associated with Pakistan’s external account have been greatly reduced,” the statement said.
Pakistan’s Euro Bonds maturing in 2016s, 2017s, 2019s, 2024s had traded mostly at a premium since May 2014 and CDS levels had been on a downward trajectory as depicted in the graph shown by Bloomberg itself, the statement added.
It said that domestic debt was perpetual in nature and was constantly refinanced through new issues.
“It would be novel to consider domestic debts maturing in the near future as posing any risk of default as a sovereign owes these debts in the local currency,” the statement said.
“We conduct three auctions in the domestic market every month, one for investment bonds of various maturities (three years or more) and two auctions for treasury bills (of maturities of 3, 6 and 12 months,” the statement said.
It added that participation in each auction ranges from Rs 100 billion to Rs 500 billion and accordingly the government refinances its domestic debt from domestic market as a standard practice in all jurisdictions which have competitive debt markets.
Domestic markets (both primary and secondary) are very well developed in Pakistan and as such the government does not feel any cause for concern with regard to refinancing its domestic debt which is also evident from the fact that the yield curve of short term and long term debt have both been declining steadily for the past one year and the yield curve is flattening across the maturity profile which again is a sign of stability.
Further, interest payments on domestic debt as percentage of GDP are moderate at around 4%, the statement said.
The ministry also said that public debt risk indicators have in fact improved during the last two years i.e. the refinancing risk of the domestic debt reduced at the end of 2014-15 as indicated by the percentage of domestic debt maturing in one year, which reduced to 47 percent compared with 64 percent at the end of 2012-13.
It added that exposure to interest rate risk has also reduced as the percentage of debt re-fixing within one year decreased to 40 per cent at the end of 2014-15 as compared with 52 per cent at the end of 2012-13.
The statement further said that the share of external loans maturing within one year was equal to around 28 per cent of official liquid reserves at the end of 2014-15 as compared with around 69 per cent at the end of 2012-13 indicating improvement in foreign exchange stability and repayment capacity.
It added that clearly, the above position establishes that Pakistan’s external account does not face any difficulty in respect of its debt servicing obligations.
“Therefore the headline is more hyperbolic than realistic.”
