Large repayments, external debt rising

KARACHI: Despite large repayments the country’s foreign debt has been rising posing a serious threat in the wake of drying up of dollar inflows.

The State Bank on Saturday disclosed that the country paid $8.854 billion in debt servicing including $7.786 billion as principals and $1.068 billion as interest during 2011.

The external debt at the end of June 2010 was $57.363 billion which rose to $61.845 billion in June 2011 despite the fact that the government made a payment of $8.854 billion.

This trend continued during the first quarter of the current fiscal, but the debt remained intact despite higher repayments.

The government did not receive any loans from the IMF after the Fund has stopped releasing tranches on fiscal indiscipline. Pakistan signed standby loan agreement of $11.3 billion in 2008 but had received a total of about $8.9 billion.

The State Bank reported that during the first quarter (July-September) of 2011-12 the external debt servicing went further high.

During the quarter the country made a total repayment of $2.099 billion ($1.890 billion as principal and $209 million as interest) as debt servicing.

However, this large payment could hardly reduce the external debt burden by just $10 million to $61.835 billion from $61.845 billion at the end of June 2011.

Analysts say the large payments are generally met through borrowing from lending agencies but these lenders have stopped funding for Pakistan. The remittances have been helping the country to meet the trade deficit and last year the country succeeded to end up with current account surplus.

However, the first four months of this fiscal year witnessed a current account deficit of $1.555 billion giving an alarming message for the economic managers in the wake of falling foreign exchange reserves and beginning of repayment of IMF loans in next two months.

The repayment of IMF loan in the absence of further inflows could trigger panic-like situation particularly in the currency market.

The dollar appreciated by 3.5 per cent against the rupee in just one month amid worsening Pak-US relation.