PM urges world to think of 'debt-write offs' to help nations like Pakistan cope with virus

[kmc_chacko]

Actually, with india's external debt sitting at $557 Billion, even india can negotiate more reasonable conditions for its external debt. It is a win-win situation, but then, little dic.kless indians can only make fun without using your tiny brains.

Unlike Pakistan's debt, I don't think it is worth for India to re-negotiate as Commercial borrowings were the largest component of external debt which is mainly on infrastructure projects and which will be eventually paid back by the revenue generated from completed projects, eg. DMRC (Delhi Metro) which was financed by Japan International Cooperation Agency (JICA) between 0.01% and 2.3% Interest rate and next component is NRI deposits which stands at 24% and short-term trade credit is 18.9%, which are continuously renewed as per the market rate and eventually reduced or increased as per the requirement. Where are Pakistan debt servicing are more towards IMF & China which can make changes as per GoP requests and I think IK is looking at that opportunity.

 

[Chak Bamu]

Actually lot of Indian debt is actually tied up in those foreign reserves (NRI bonds/capital account) to begin with ... the yields are quite low because of trust in Indian economy+admin (and credit rating). This of course need to be improved lot more, esp if India is to transition to a more supply-side economy this decade...leveraging its ~ 2 trillion market cap.

The real issue for Pakistan on other hand is its market cap is 40 billion USD and that took a dip from 90 billion just a year or so ago. That means it can leverage on very little internally....its credit rating is junk too. Forex reserves are low and idle too, waiting for some sustained breakout somewhere.

Frankly, I.K admin is quite desperate if they are trying to ask for debt relief just because of corona....and it doesn't give a good look for investor and economic confidence either (which is what an admin/govt should focus on doing the hard but more permanent way). These two are important to get people to invest on their own dime and bear the risk themselves (rather than essentially tier-dependent "socialised" risk on Pakistan taxpayer/revenue like debt does in the end).

Its for this reason, that the govt should not have taken this decision to "urge" debt relief for Pakistan....because sympathetic ear erodes each passing cycle. You just got to pull your bootstraps up at some point and do the hard work in making Pakistan more attractive for business and genuine supply chain investment+integration etc.

Don't think anyone is going to re-package debt either because most have already done so for Pakistan (as much as they can I believe, but I could be wrong) and they want a good chunk of 5 - 10 year reforms in Pakistan first (to have Pakistan prove it is willing to do its side to improve its finances)....rather than be taken for ride in yet another typical cycle.

Like rest of region, Pakistan govt must look to get out of running businesses. Govts are very inefficient at that, its too much intervention at too much cost to rest of country.

@Chak Bamu @Socra @Jungibaaz

Great post @Nilgiri

You are spot-on as ever. The problem with IK is that he does not know what to say when. He thinks that sounding earnest is more important than showing wise restraint. Had he actually done some homework & used a bit of actual diplomacy, he could have made a considered move rather than this rash & impulsive comment.

Any meaningful reform is bound with improvement in regional environment. There is a lot more to be said on this count, but wise ones will understand what this means.

Thanks for the tag.

 

[ARMalik]

So, this is for ALL those smart arses who were telling me that this would NEVER happen. On your face.

=============================
https://www.thenews.com.pk/print/634668-world-bank-imf-advocate-debt-relief-for-poorest-countries
World Bank, IMF advocate debt relief for poorest countries

ISLAMABAD: The World Bank Group and International Monetary Fund (IMF) in a joint statement on Wednesday called on all the official bilateral creditors to suspend debt payments from the International Development Association (IDA) countries that request forbearance in the wake of eruption of COVID-19 Virus.

Pakistan is also among the list of 76 countries that are eligible to receive the IDA resources under concessionary lending. Pakistan owed around $11 billion from official bilateral creditors of the Paris Club countries and Islamabad had once obtained debt relief in 2002-3 for 10 years when Pakistan had decided to stand by the US in itswar against terror in the aftermath of 9/11, 2001. During that period, Pakistan had enjoyed fiscal cushion on debt repayment front from official bilateral donors of Paris Club. Pakistan had to sign agreement with each country separately after striking agreement of getting concession from Paris Club. It is not yet known whether Islamabad would seek debt relief from official donors or not at this juncture as this correspondent made efforts to contract Federal Minister for Economic Affairs Hammad Azhar to get version and also sent him message but got no reply till filing of this report.

However, the World Bank Group and International Monetary Fund have issued a joint statement to the G20 concerning debt relief for the poorest countries and stated that the coronavirus outbreak is likely to have severe economic and social consequences for the IDA countries, home to a quarter of the world’s population and two-thirds of the world’s population living in extreme poverty.

It stated that with immediate effect—and consistent with national laws of the creditor countries—the World Bank Group and the International Monetary Fund call on all official bilateral creditors to suspend debt payments from IDA countries that request forbearance. “This will help with IDA countries’ immediate liquidity needs to tackle challenges posed by the coronavirus outbreak and allow time for an assessment of the crisis impact and financing needs for each country” the joint statement added.

"We invite G20 leaders to task the WBG and the IMF to make these assessments, including identifying the countries with unsustainable debt situations, and to prepare a proposal for comprehensive action by official 'bilateral creditors' to address both the financing and debt relief needs of the IDA countries. We will seek endorsement for the Proposal at the Development Committee during the Spring Meetings (April 16–17).

"The World Bank Group and the IMF believe it is imperative at this moment to provide a global sense of relief for developing countries as well as a strong signal to financial markets. The international community would welcome G20 support for this call to action," it concluded.

Meanwhile, Federal Minister for Economic Affairs Hammad Azhar said that "We welcome joint statement of WB & IMF calling upon G20 countries to suspend debt payments of dev [developing] countries. PM Imran Khan has been urging this since COVID-19 pandemic. We hope it shall be accepted & we also urge multi-laterals for relief on their debts.”

 

[nahtanbob]

What is baffling me is why Pakistan didn't ask for debt write-offs before Taliban deal was signed. It was the perfect opportunity and Pakistan missed it.

What did Pakistan get in exchange for bringing Taliban to the negotiating table with the US? I hope Pakistan didn't do it for free. We should've asked for some debt write offs in exchange for helping US with the peace deal. That opportunity is gone now. US needed our help and I think we did it without getting any concessions in return which was really stupid. If US said no to debt write off, we wouldn't have lost anything by asking anyway. Most likely they would have given us something since there was no way they could have gotten the deal signed without our help.

that is assuming pakistan has any leverage

Actually lot of Indian debt is actually tied up in those foreign reserves (NRI bonds/capital account) to begin with ... the yields are quite low because of trust in Indian economy+admin (and credit rating). This of course need to be improved lot more, esp if India is to transition to a more supply-side economy this decade...leveraging its ~ 2 trillion market cap.

The real issue for Pakistan on other hand is its market cap is 40 billion USD and that took a dip from 90 billion just a year or so ago. That means it can leverage on very little internally....its credit rating is junk too. Forex reserves are low and idle too, waiting for some sustained breakout somewhere.

Frankly, I.K admin is quite desperate if they are trying to ask for debt relief just because of corona....and it doesn't give a good look for investor and economic confidence either (which is what an admin/govt should focus on doing the hard but more permanent way). These two are important to get people to invest on their own dime and bear the risk themselves (rather than essentially tier-dependent "socialised" risk on Pakistan taxpayer/revenue like debt does in the end).

Its for this reason, that the govt should not have taken this decision to "urge" debt relief for Pakistan....because sympathetic ear erodes each passing cycle. You just got to pull your bootstraps up at some point and do the hard work in making Pakistan more attractive for business and genuine supply chain investment+integration etc.

Don't think anyone is going to re-package debt either because most have already done so for Pakistan (as much as they can I believe, but I could be wrong) and they want a good chunk of 5 - 10 year reforms in Pakistan first (to have Pakistan prove it is willing to do its side to improve its finances)....rather than be taken for ride in yet another typical cycle.

Like rest of region, Pakistan govt must look to get out of running businesses. Govts are very inefficient at that, its too much intervention at too much cost to rest of country.

@Chak Bamu @Socra @Jungibaaz

Pakistan had a huge debt rescheduling under Musharraf during war on terror. The debt was renegotiated to lower interest rates

 

[Nilgiri]

Pakistan had a huge debt rescheduling under Musharraf during war on terror. The debt was renegotiated to lower interest rates

Sure and they missed the bus on the window it offered to do institutional reform long term to capture genuine investment cycles in the larger world market.

But institutionalism runs contrary to dictatorship in first place, so not surprising.