Pakistan's external debt servicing jumps by 70% in first half of FY23

Pakistan's external debt servicing rose by 70 per cent in the first two quarters of 2022-23, worsening the shortage of dollars, Dawn reported.

In the first half of the fiscal year, Pakistan paid USD 10.21 billion in external debt servicing while in the same period of 2021-22, the country paid USD 6 billion, State Bank of Pakistan's (SBP) data showed.

As per the data, Pakistan had to pay USD 6.77 billion, an unusually high amount, in external debt servicing in October-December.

The amount of debt servicing in the second quarter of 2022-23 was almost twice the sum (USD 3.45 billion) that the country paid in the preceding quarter of the same fiscal year.

Such a high level of debt servicing in the first half of 2022-23 drastically reduced the foreign exchange reserves of the SBP, which is responsible for such payments. Foreign exchange reserves of the SBP are hovering around USD 3.2 billion, according to Dawn.

The inflows from the International Monetary Fund (IMF) and other global institutions could not be unlocked despite a long spell of talks with the Washington-based lender in Pakistan.

Pakistan and International Monetary Fund failed to reach a staff-level agreement to unlock the USD 1.1 billion loan tranche after 10 days of "tough" talks, The News International reported. The negotiations which took place between IMF and Pakistan from January 31 to February 9, concluded in Islamabad. The IMF's mission had arrived in Islamabad to hold talks with Pakistani authorities.

Last year, in July, Pakistan's external debt servicing rose to USD 10.886 billion in the first three quarters of 2021-22 compared to USD 13.38 billion in the entire FY21.

The external debt servicing was just USD 1.653 billion in 1QFY22 against USD 3.51 billion in the first quarter of 2020-21.

However, the debt servicing jumped to USD 4.357 billion in 2QFY22 and further to USD 4.875 billion in 3QFY22, reported Dawn.

The increasing size of the external debt servicing in each quarter indicates the government has been borrowing dollars at higher commercial rates to meet its foreign debt repayment obligations, reported Dawn.