In an effort to give itself some breathing room while working to reconstruct the more than 33 million victims of the terrible floods, Pakistan announced on Friday that it was seeking the rescheduling of a $10 billion debt owed to the Paris Club, a collection of wealthy nations.
According to Finance Minister Miftah Ismail, Prime Minister Shehbaz Sharif also asked IMF Managing Director Kristalina Georgieva to advance the almost $3 billion remaining loan in November of this year.
The announcement of debt rescheduling was made by the finance minister via a microblogging platform in order to calm investors’ worries on the international financial markets after hearing that Pakistan was seeking debt relief for all of its debt, including commercial loans.
The finance minister tweeted from New York, “Given the climate-induced calamity in Pakistan, we are requesting debt forgiveness from bilateral Paris Club creditors.”
“We are not seeking nor in need of any rescue from commercial banks or Eurobond creditors,” the minister continued.
The 17 Paris Club members will reschedule Pakistan’s debt for the third time in the last 20 years. Previously, the Paris Club rescheduled loans for 15 years when Pakistan joined the US as an ally in the fight against terrorism. In the wake of the Covid-19 epidemic, the loan was renewed for a second time for three to four years.
We want to ask the Paris Club to postpone its loans for a few years before asking its members to replace the debt with finance for climate change efforts, according to Ismail.
According to statistics from the Ministry of Finance, as of June this year, Pakistan’s public sector had $97 billion in external debt, of which it owed $9.7 billion to the Paris Club.
Pakistan is expected to repay $1.1 billion of the $10 billion in Paris Club debt this year. According to the economic affairs ministry, this year will see the maturity of about $400 million in Japanese debt, followed by $300 million in French debt, $200 million in US debt, and about $100 million in German debt.
Rearranging the $1.1 billion Paris Club debt will give the nation an immediate breathing room of roughly Rs260 billion, which it may use to aid flood victims.
Out of the $10 billion, a sum of $8 billion is owed to five countries – Japan $4.6 billion, France $1.6 billion, Germany $1.3 billion, the US $1.1 billion and South Korea $415 million, according to the documents.
Austria has given $24 million, Belgium $17 million, Canada $50 million, Finland $3 million, Italy $161 million, the Netherlands $78 million, Norway $10 million, Russia $72 million, Spain $63 million, Sweden $88 million, Switzerland $79 million and the United Kingdom $5 million.
Ismail’s comment is a change from his former position, in which he disregarded the prospect of debt rescheduling.
The finance minister said that the Paris Club members might be able to refinance their bilateral debt without first having to refinance their commercial loans.
He said that Pakistan would pay back the $1 billion bond that was due in December on schedule because the nation has no intention of applying for the commercial loan rollover. “We have been paying off all of our business debt, and we will keep doing so.”
According to the minister, Pakistan’s Eurobond, which is due between now and 2051, is merely $8 billion, thus it is not a significant financial hardship. “Friendly nations who have promised to renew their deposits on a major chunk of our debt.”
The proposal to loosen restrictions and discharge the remaining loan money under the Extended Fund Facility was made by PM Shehbaz Sharif during a meeting with the IMF MD two days ago.
Ismail added that the PM asked the IMF MD to release the final $3 billion up front because Pakistan was unable to meet the requirements and then receive the remaining loan in three instalments. He also said that Pakistan was hopeful that the IMF would respond favourably.
“Our expectation is that the IMF will club at least two tranches and release the amount upfront,” the minister said.
Global lenders have remained reluctant to disburse loans in the current fiscal year. During July-August FY23, the international creditors disbursed a mere $424 million, which was equal to 1.9% of the annual estimate of $22.6 billion, according to statistics released by the Ministry of Economic Affairs on Friday.
The largest loan of $200 million was given by Saudi Arabia under the oil-on-deferred-payment facility during the two-month period. Of the rest, the World Bank gave $118 million and the Asian Development Bank $71 million.
IMF’s $1.1 billion tranche was released in September, which would be part of the next monthly debt bulletin.
The Paris Club debt rescheduling won’t solve Pakistan’s issues, though. Additionally, the nation owes non-Paris Club nations $16 billion, with Islamabad owing $14.5 billion to China.
Overall, servicing more than two-thirds, or $66 billion, of the total external public and publicly-guaranteed repayments in five years will be a huge problem for Pakistan.
The estimated $9.4 billion in interest payments on these loans during the same time are not included in the $66 billion in repayments of external debt.
