Pakistan is expected to take $ 10-15 billion in debt repayments
KARACHI: Pakistan’s struggling economy is expected to earn $ 10 to $ 15 billion from one year inhaling interest and principal payments to foreign, multilateral and commercial creditors under the G-20 debt aid package for poor countries, analysts said on the day Friday.
Faizan Ahmed, head of research at BMA Research said about $ 15.8 billion in debt payments – principal plus interest – will be due within the next year and more than 90 percent is owed to the state or G20 institutions.
“Nearly all $ 15.3 billion of total payments due in the next year will be eligible for assistance,” Ahmed said.
The grouping of 20 developed countries announced a one-year freeze on external loan payments for 77 countries and regions, including Pakistan, a member of the World Bank’s International Development Association, to support them in difficult and unusual times amid the corona virus pandemic.
The debt suspension period is expected to commence from 1 May 2020 and continue until 1 December 2020. Debt payment obligations during this period will be included in new loans and repayments will not begin until June 2022. After that, the amount that is frozen will be paid over a period of three the following year with a grace period of one year.
Analyst Atif Zafar from Topline Research estimates that aid from debt restructuring is expected to reach $ 7 billion, seeing a positive impact on the current account position favored by a 50 percent reduction in international oil prices.
Although Zafar said a decline in exports and remittances would cancel most of the benefits, “overall, we believe these steps and flows will stabilize Pakistan’s balance of payments in the near future, where by December 2020 we expect the State Bank of Pakistan reserves to rise to around $ 12 to $ 14 billion from the current $ 11 billion. “
“We hope this development will provide strength for rupees in the near future, where we keep our June-2020 forecast at 168-170,” he said.
Analyst Noman Ahmed at Insight Securities said details of solving the G20 debt relief have not been announced. The country is projected to pay $ 11.8 billion, $ 6.2 billion, $ 7.8 billion and $ 5.8 billion respectively in FY20, FY21, FY22 and FY23.
“Pakistan is trying to reschedule / postpone $ 12 billion in loans, 17 percent of the government’s foreign debt and if this happens, this will be a major breakthrough because Pakistan will likely remain a net beneficiary of a decline in imports / exports / remittances,” said Ahmed. , citing foreign debt which reached 31.1 percent of GDP or $ 87.5 billion.
Pakistan got its debt rescheduled 10 times since the 1970s with a massive $ 12.5 billion restructuring approved by the Paris Club in December 2001. This time around most of the payments were due to non-Parisian club creditors and $ 6 payments, 7 billion is scheduled for FY21.
Saad Khan, analyst at IGI Securities, said the suspension of G20 debt repayment costs around the time of Covid-19 was welcomed. “The SBP estimates less pressure on the exchange rate because these funds will help protect the severe withdrawal of the country’s FX reserves,” Khan said.
Other analysts said further monetary action from the central bank was expected given the sharp decline in economic activity, the background of tame inflation and improving external account positions after the G20 debt relief and multilateral funding commitments. The central bank cut its policy rate cumulatively by 425 basis points to 9 percent compared to last month. The emergency rate cut comes on the back of the deteriorating outlook for the global and domestic economy due to COVID-19 and the improving outlook for inflation following a drop in commodity prices.
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