Govt exhorted to seek IMF-led debt restructuring for 3-5 years

[Zibago]

Govt exhorted to seek IMF-led debt restructuring for 3-5 years​

Recorder Report Published December 4, 2022 Updated about 8 hours ago

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KARACHI: A large external financing gap, challenging global financial markets, devastating floods, and political instability have increased the risk of defaulting on external debt payments, an analyst has said.
Muhammad Sohail, leading analyst and the chief executive officer of Topline Securities, has said that Pakistani economy is passing through one of the toughest periods in its 75-year history.
Declining foreign exchange reserves and rising external funding gap are worrisome. Although current account deficit is coming down after currency devaluation and other tightening measures, the biggest worry is external debt repayment, he added.
According to IMF data, Pakistan’s external debt repayment obligations are US$73 billion in three years (FY23-25) compared to prevailing foreign exchange reserves of $7-8bn. This huge repayment requirement is due to large external borrowings (external debt and liabilities) that have doubled in seven years from $65bn in FY15 (24 percent of GDP) to $130 billion (40 percent of GDP) in FY22.
Resultantly, Pakistan’s total debt and liabilities (domestic and external) have increased from Rs19.9 trillion (72 percent of GDP in FY15) to Rs60 trillion as of June, 2022 (90 percent of GDP).
“Considering this external debt repayment crisis, we think Pakistan will do a Debt Rescheduling (Base Case) with its bilateral lenders, especially China as it forms 30 percent of government external debt and the repayment to China is huge in next few years,” M. Sohail said.
Pakistan must capitalise on its friendly relations with China and must seek IMF-led Debt Restructuring of at least $30 billion for next 3-5 years, he said. The finance minister has already hinted at bilateral rescheduling.
The sooner the government starts this process the better it will be. In case, current coalition government delays it for political reasons then government coming into power after 2023 elections will have to do this, he said.
Moreover, the new government will have to enter into a new and bigger IMF programme to execute this much-needed rescheduling. Commercial lenders, Eurobond investors, local lenders and others may or may not be affected by this rescheduling, depending upon the negotiations.
Similarly, Pakistan’s credit rating that was recently downgraded (Moody’s downgraded to Caa1 from B3) may also be adversely affected.
“We have seen precedence from other countries like Argentina, Angola, and Zambia that also undertook restructuring of loans. Even in the past, Pakistan restructured its Eurobond and rescheduled certain portions of the Paris Club payments post nuclear tests in 1998,” he said.
Under the new IMF programme along with Debt Restructuring, country will likely witness strict monetary, exchange rate and fiscal policies. The country’s economic growth will remain slow. Moreover, PKR will remain under pressure, while interest rate will remain on higher levels despite a receding inflation.
“Under our Best-Case scenario a decline in commodity prices of 25 percent from expectations and an improvement in financial markets will provide the much-needed relief and the country can then move without Debt Restructuring. In contrast, if the debt is not restructured on time, Pakistan’s debt crisis could worsen further which could hamper Pakistan’s ability to pay on time.”

Govt exhorted to seek IMF-led debt restructuring for 3-5 years

KARACHI: A large external financing gap, challenging global financial markets, devastating floods, and political...

www.brecorder.com

 

[epebble]

Also:

‘Debt restructuring is inevitable’​

KARACHI: With dollar-denominated loan repayments of $73 billion falling due in the next three years, the talk of a debt restructuring is gathering pace.

‘Debt restructuring is inevitable’

Influence-wielding voices are calling for restructuring Pakistan’s foreign public debt of roughly $99bn.

www.dawn.com

$73 Billion in Three years is impossible. I see Pakistan following the footsteps of Argentina, and remaining capital starved for a long time till major restructuring occurs in national governance and economy.

 

[Laozi]

This huge repayment requirement is due to large external borrowings (external debt and liabilities) that have doubled in seven years from $65bn in FY15 (24 percent of GDP) to $130 billion (40 percent of GDP) in FY22.

If $130 bn happens to be 40% of GDP then Pakistan's GDP amounts to $325 bn

Resultantly, Pakistan’s total debt and liabilities (domestic and external) have increased from Rs19.9 trillion (72 percent of GDP in FY15) to Rs60 trillion as of June, 2022 (90 percent of GDP).

If PKR 60 trillion is 90% of GDP then Pakistan's GDP amounts to $295 bn

The referred article was published on 4th of December when PKR was more or less stable or appreciating against USD. Analyst/publisher must check and correct such obvious discrepancies to avoid misguiding the readers.

 

[CrazyZ]

$73 Billion in Three years is impossible.

Why? Exports plus remittances are about $60-70 billion per year. The key is controlling CAD and not taking on more dollar denominated debts. If CAD can be kept at 1/3 of its 2021 peak then crisis will be averted.

Every time oil goes over $100 per barrel Pakistan faces a forex crisis since Pakistani leadership has not adequately hedged against high energy prices. Pakistan must live within its means....the import consumption economy preferred by current elites must be be restructured into a more self sufficient export focused economy. This is the most critical restructuring needed to Pakistan's economy. Even if current external debts are restructured......the same situation will occur in 5-10 years when oil goes over $100 if the import consumption economy is retained.

 

[epebble]

Why? Exports plus remittances are about $60-70 billion per year. The key is controlling CAD and not taking on more dollar denominated debts. If CAD can be kept at 1/3 of its 2021 peak then crisis will be averted.

Every time oil goes over $100 per barrel Pakistan faces a forex crisis since Pakistani leadership has not adequately hedged against high energy prices. Pakistan must live within its means....the import consumption economy preferred by current elites must be be restructured into a more self sufficient export focused economy.

Pakistan has never been capable of paying for imports with exports + remittances over a stretch of time. It has always depended on borrowings to cover the gap. Now, to set aside $73 billion in surpluses to pay back the loans without incurring fresh loans of equal or greater amount seems impossible without some miracle. That would be devoting 25 billion per year of inflows for repayment leaving only 35-45 billion for all imports per year. And this has to be done for three years. That would be such a contraction in the economy that it will create utter political chaos. The best course of action I can visualize is to rollover the loans, greatly improve macroeconomic stability and improve productivity and slowly get out of the black hole by development and growth.

 

[CrazyZ]

Pakistan has never been capable of paying for imports with exports + remittances over a stretch of time. It has always depended on borrowings to cover the gap.

Largely because elites do not view forex as precious and do not reinvest wealth into domestic capital resources. Most Pakistani elites are untaxed rentiers that require consumption of imported status items to show off their social standing. This is what must be restructured or else the same situation will occur in 5 to 10 years.

Just banning 10% of (luxury) imports has reduced CAD by 70%. That should show how much a burden the consumption habits of elite Pakistanis are to the national exchequer. Target luxury imports and boost local energy production........ and exports + remittances will easily cover imports and any debts.

 

[Catalystic]

Pakistan be fine

Why doesn’t IMF and the West simply return our looted weath that is stashed in their countries

Return it today and we won’t even need any of this bullshit!!

 

[CrazyZ]

return our looted weath that is stashed in their countries

Its not this simple. I have heard the eliminate corruption and everything will be all right argument since I was a small boy. Domestic economic structure must change. Corruption mudslinging only distracts from identifying and resolving root cause issues.

 

[Ssan]

If $130 bn happens to be 40% of GDP then Pakistan's GDP amounts to $325 bn

If PKR 60 trillion is 90% of GDP then Pakistan's GDP amounts to $295 bn

The referred article was published on 4th of December when PKR was more or less stable or appreciating against USD. Analyst/publisher must check and correct such obvious discrepancies to avoid misguiding the readers.

I read this as the following:-

If 40% of person A’s “richard” measures as x, then 90% of person As richard must be no more than y.

 

[Turingsage]

Pakistan be fine

Why doesn’t IMF and the West simply return our looted weath that is stashed in their countries

Return it today and we won’t even need any of this bullshit!!

It isnt the IMF or the West that has stolen the money. The money stolen was by Pakistanis and if you can prove the money was stolen than you can get it back. We in the West live in a land of laws. The corruption excuse is endlessly used by Pakistani's who do not want to take on the difficult task of restructuring their economy and applying themselves.
They got used to American aid and Middle Eastern potentates giving them freebies.

 

[epebble]

It isnt the IMF or the West that has stolen the money. The money stolen was by Pakistanis and if you can prove the money was stolen than you can get it back. We in the West live in a land of laws. The corruption excuse is endlessly used by Pakistani's who do not want to take on the difficult task of restructuring their economy and applying themselves.
They got used to American aid and Middle Eastern potentates giving them freebies.

That is not to say corruption does not exist. The recently revealed documents show the COAS has amassed billions in assets. However, the response of the finance minister was to take umbrage at the leak but not the corruption. Though much was made of undervaluing of the gifts by the previous PM. So, blame for corruption, and selective outrage about it is more a problem of Pakistan than outsiders where money may be stashed. When Mr. Bajwa wire transfers a million dollars to a Swiss or Caribbean bank, there is no mechanism for them to check how he earned it. And if Bank 1 refuses to touch it, Bank 2 elsewhere is always ready to take the deposit.

 

[Turingsage]

Take South Korea. It was the most corrupt nation in Asia . The chaibols OWNED the politicians. They were all paid illegally to run in elections so they can serve the chaibols interests.
Pakistan's corruption is chup change compared to corruption in Korea.
Japan too has VAST amount of political corruption as does India and EVERY other developing country.
The difference is they got on with building their countries and dealt with corruption bit by bit even with endemic corruption.
Pakistan lives in fantasy land. It has relied pn the billions pumped in by the Americans and the middle eastern potentates or nowadays China. They HAVE ABSOLUTLY NO DESIRE TO FIX THEIR COUNTRY.
They will be moaning and whining about corruption till someone bails them out. They are counting on it. They have not the slightest inclination of working hard to uplift themselves.
Corruption is an excuse that IK has blown out of all proportion to excuse his own abject failures and inadequacies.
IK will fail because corruption is not Pakistan's major issue, it is its failure to live within its means and making an effort to produce things the world requires.

 

[CrazyZ]

Take South Korea. It was the most corrupt nation in Asia . The chaibols OWNED the politicians. They were all paid illegally to run in elections so they can serve the chaibols interests.
Pakistan's corruption is chup change compared to corruption in Korea.
Japan too has VAST amount of political corruption as does India and EVERY other developing country.
The difference is they got on with building their countries and dealt with corruption bit by bit even with endemic corruption.
Pakistan lives in fantasy land. It has relied pn the billions pumped in by the Americans and the middle eastern potentates or nowadays China. They HAVE ABSOLUTLY NO DESIRE TO FIX THEIR COUNTRY.
They will be moaning and whining about corruption till someone bails them out. They are counting on it. They have not the slightest inclination of working hard to uplift themselves.
Corruption is an excuse that IK has blown out of all proportion to excuse his own abject failures and inadequacies.
IK will fail because corruption is not Pakistan's major issue, it is its failure to live within its means and making an effort to produce things the world requires.

First time I agree with you.

Common man in Pakistan responds very well to corruption mud slinging by Pakistani politicians. IK and other politicians will keep running the same play over and over again because its effective. I blame using the British parliamentary system as a role model. Economic decisions are made based on popularity and not soundness. Take Brexit for example.

 

[hydrabadi_arab]

Take South Korea. It was the most corrupt nation in Asia . The chaibols OWNED the politicians. They were all paid illegally to run in elections so they can serve the chaibols interests.
Pakistan's corruption is chup change compared to corruption in Korea.
Japan too has VAST amount of political corruption as does India and EVERY other developing country.
The difference is they got on with building their countries and dealt with corruption bit by bit even with endemic corruption.
Pakistan lives in fantasy land. It has relied pn the billions pumped in by the Americans and the middle eastern potentates or nowadays China. They HAVE ABSOLUTLY NO DESIRE TO FIX THEIR COUNTRY.
They will be moaning and whining about corruption till someone bails them out. They are counting on it. They have not the slightest inclination of working hard to uplift themselves.
Corruption is an excuse that IK has blown out of all proportion to excuse his own abject failures and inadequacies.
IK will fail because corruption is not Pakistan's major issue, it is its failure to live within its means and making an effort to produce things the world requires.

True, every out going political force open floodgates to provide temporary relief and not loss political capital. Instead of going the hard and long route. World powers cannot bail out anymore because our needs have grown exponentially with population. Only remittances have grown with it which is keeping our head just above.

And Pakistan is also of no use to anyone for geopolitical goals anymore. Which is a good thing as near default or default like situation may bring some much needed change in how economy is handled in future.

First time I agree with you.

Common man in Pakistan responds very well to corruption mud slinging by Pakistani politicians. IK and other politicians will keep running the same play over and over again because its effective. I blame using the British parliamentary system as a role model. Economic decisions are made based on popularity and not soundness.

Dim Khan think few million $ worth of money laundering by Sharif's explain Pakistan chronic CAD which run in to $20 billion every year. lmao

Economic damage done by Dim Khan fixed petrol price is more then thousand avenfield apartments.

Now Dar is back to finally bankrupt Pakistan, the job he left in 2017. This time he will finally do it.

 

[kursed]

Angola, Zambia - that’s some company Pakistan is made to keep.

I wish people knew what their civ/mil leaders are filling their coffers with right now.