Government seeks to extend debt program

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ISLAMABAD:

The government has decided to seek cabinet approval for an indefinite extension of its global capital markets debt program as the International Monetary Fund (IMF) assesses Pakistan’s gross external financing needs at a record high. $35 billion over the next fiscal year.

The global medium-term note program the government launched in March last year to tap global markets to meet its growing external financing needs will expire this month, sources at the finance ministry have said. . The Express Grandstand.

The program was launched to reduce the time spent traveling to global markets and taking out loans from about four months to two weeks. Borrowing programs are now an essential tool for building up reserves, the sources added.

A transaction in the international capital market requires the hiring of financial advisers, local and international legal advisers, paying and listing agents, which is often time-consuming. The Ministry of Finance is currently carrying out several transactions with the same set of external sector experts.

Sources said it was decided by the Ministry of Finance that it needed flexibility in determining the timing of the program and the amount of funds needed to organize instead of seeking cabinet approval first for a specific loan amount.

Under the current global medium-term note program, the government has raised $3.5 billion of debt by floating Eurobonds. It also raised an additional $1 billion through the Trust Certificate Issuance (TCI) program through Sukuk at the highest rate ever of 7.95% by committing to the highway.

The Sukuk program was launched last month for one year, but the finance ministry is now asking for what the source called a “perpetual extension” to allow the government to quickly dive into international capital markets for its financing needs.

Finance Minister Shaukat Tarin told an international publication that the government intends to raise $1 billion in a month through Eurobond.

However, the government has completely ignored the strengthening of the Debt Policy Office which works without a permanent head and with less than its staff. A senior level officer looks after the government debt portfolio of over Rs 41 trillion.

The government relied heavily on foreign creditors to meet its budget deficit needs and to swell foreign exchange reserves in addition to repaying maturing debt.

Yet reserves are not stabilizing and are being depleted as quickly as the government takes on new borrowings.

In December, the government had taken $3 billion from Saudi Arabia, bringing its official reserves to $19 billion. But reserves fell again to $16 billion last month, forcing the government to seek new avenues of borrowing.

The State Bank of Pakistan (SBP) announced on Thursday that it had received $1.1 billion from the IMF and a $1 billion Sukuk loan, which reduced its reserves to $17.4 billion as of February 4, 2022. However, the increase in reserves is less than the amount of new borrowings due to the repayment of maturing borrowings.

The IMF staff report on the sixth program review revealed that Pakistan would need a record gross external financing of $35 billion to close the current account deficit and repay its loans in fiscal year 2022- 23, from July.

The IMF has projected a current account deficit of $12 billion in the next fiscal year, while public sector-related repayments are estimated at $17 billion, according to the report.

The government will have to repay $3.1 billion in short-term debt and $13.8 billion in long-term debt, according to the report. A $1 billion sovereign bond also matures in December this year.

However, the IMF also assumed that Pakistan would be able to secure a rollover of $7.1 billion in public debt from international creditors.

The refinancing of $4 billion of Chinese debt in addition to an additional $5.5 billion loan request was also on Prime Minister Imran Khan’s agenda during his visit to Beijing.

In an interview, the finance minister did not directly answer whether China had agreed to provide the new loan.

The IMF report underlined that, as previously assessed, high risks – notably due to the late adoption of reforms, high public debt and gross financing needs, and low reserves – could jeopardize the objectives of its $6 billion program and eroding repayment capacity and debt sustainability.

The report also states that in 2017-2018, external public debt was $72.5 billion and will reach $103 billion by the end of Pakistan Tehreek-e-Insaf (PTI) term.

Just 10 months ago, the IMF projected external public debt at $92.3 billion, which it has now adjusted upwards while showing a larger current account deficit and external financing needs.

The current account deficit that the IMF showed at $5.4 billion at the end of the fifth review in March last year for the current fiscal year is now projected at $13 billion for the current fiscal year. Classes.

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