ISLAMABAD: Pakistan has informed the International Monetary Fund (IMF) that its debt service costs could rise to as much as 8.5 trillion Pakistani rupees (PKR), indicating a PKR 1.2 trillion deviation from the allocated budget, The Express Tribune reports. According.
Due to adverse economic conditions, the country is facing challenges in securing foreign loans worth about US$6.5 billion this year.
To address this external financing gap, Pakistani officials have requested assistance from the IMF, despite ongoing engagement with the IMF program. According to The Express Tribune, excessive expenditure on interest payments in challenging economic conditions and difficulties in raising foreign debt are central concerns in the discussions for the US$710 million loan tranche.
The IMF has raised questions and will provide its assessment next week. Government sources revealed that IMF staff fear that Pakistan’s budget deficit will exceed initial estimates due to rising debt servicing costs.
Pakistan’s debt management office has also been included in the talks, with concerns raised about staff shortages and reliance on foreign-funded consultants.
The IMF was told that interest costs could rise to PKR 8.5 trillion during the current fiscal year, with efforts being made to reduce this estimate through adjustments in the debt maturity profile.
A large portion of this debt cost is attributed to servicing domestic debt, while servicing external debt amounts to over PKR 900 billion.
The IMF will review these data and provide its assessment of the revised budget deficit and external financing needs. The two parties are in talks for a second loan tranche of US$710 million as part of a US$3 billion short-term programme, The Express Tribune reported.
The IMF’s view is that raising debt with 12-month Treasury bills will have an accounting impact but will not have a material impact on overall borrowing costs. The IMF program is due to end in April next year.
Due to higher interest payments, the projected federal budget deficit of PKR 7.5 trillion could reach a record PKR 8.7 trillion, even if other projections remain unchanged.
Pakistan’s external debt of approximately US$6.5 billion will depend on market conditions. The government has requested IMF assistance in arranging these loans, including reducing external financing requirements by US$24 billion, adjusting for lower projected current account deficit, and rescheduling Chinese loans. Some of the shortfall can be offset by reducing imports to further reduce the current account deficit.
Despite discussions on its rules at the Special Investment Facility Council (SIFC) level, the prospects for raising debt through green bonds remain uncertain, reports The Express Tribune.
