The International Monetary Fund (IMF) has said that Pakistan’s external debt worth $27 billion will mature within the next two years.
This external debt repayment figure has emerged in the IMF’s new Regional Outlook Report Update on North Africa, Middle East, Afghanistan.
While the IMF and Pakistan are about to conclude the bailout package talks, the looming debt repayment is going to have repercussions for the bailout.
The $27 billion maturing external debt equals 27 percent of Pakistan’s total external debt and liabilities as of February 2019. Moreover, it is the highest repayment by any country in the region.
If the financial requirements of the current account deficit are added, Pakistan will require $46 billion to $50 billion in the next two years to remain financially solvent according to the government and private sector experts’ assessment.
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However, another IMF report projects Pakistan’s debt-to-GDP ratio to remain high, i.e., at 77 percent of GDP by June 2019. The IMF’s Public Debt Sustainability Analysis in market Access Countries noted the emerging markets would face a higher risk of debt distress with public debt exceeding 70 percent of GDP.
Notably, Pakistan already crossed this precarious threshold in the previous government’s tenure with debt-to-GDP ratio standing at 72.5 percent.
The looming debt repayment and financing of current account deficit can lead to stringent conditions by the IMF entailing tightening of monetary and fiscal policies.
According to an estimate, Pakistan will need at least $20 billion for its current account deficit financing over the next two years. Moreover, the country’s gross financing needs in the next two years will reach a minimum of $50 billion.
It will need short-term debt apart from the new loans to meet external obligations, according to Shahid Kardar, the former governor of the central bank. He further assessed that the government will have to pay around $35 billion in the next two years to meet its financing needs.
The amount that would need to be rescheduled into long-term loans will be over $15 billion in the said period. The IMF’s new regional outlook update also mentioned unfavorable geopolitical conditions while projecting Pakistan’s growth to slow down from 5.2 percent in 2018 to 2.9 percent in 2019.