Pakistan Among 43 Counties That Benefited from $5 Billion DSSI Initiative: WBG-IMF Report

The World Bank and International Monitoring’s staff has proposed the extension and strengthening of the Debt Service Suspension Initiative and a joint action plan on debt reduction for IDA countries with unsustainable debt to their Governors.

This was revealed by World Bank President David Malpass. Malpass said that the two institutions will propose a joint action plan to reduce the debt stock for poor countries with unsustainable debts.

A new World Bank debt study showed that among countries eligible for the G20 debt relief program, external debt climbed 9.5 percent in 2019 to $744 billion before the pandemic hit.

According to the implementation and extension of debt service suspension document of the International Monetary Fund (IMF) and the World Bank Group (WBG), obtained by ProPakistani, while bond spreads of many countries receiving this debt relief from G-20 countries have declined, for Pakistan it remains above the pre-crisis level (i.e. before coronavirus hit).

The document in concern outlines the implementation and extension of the Debt Service Suspension Initiative prepared by the WBG and the IMF for the virtual October 16, 2020 Development Committee Meeting.

According to the document, the COVID-19 pandemic is heavily impacting the world’s poorest countries. Economic activity in the poorest countries is expected to drop by about 2.8 percent in 2020. Keeping this in sight, the G20 Finance Ministers endorsed the Debt Service Suspension Initiative (DSSI) in April 2020. It is meant to enable a fast and coordinated release of additional resources to beneficiary countries to bolster their crisis mitigation efforts.

The DSSI became effective on May 1, and as of end-August, 43 countries – including Pakistan – have benefitted from an estimated $5 billion in temporary debt service suspension.

According to DRS data, DSSI participants’ total external PPG debt service to private creditors is estimated at $6.8 billion over May-Dec 2020 (31 percent of total debt service on external PPG debt) and $ 10.1 billion for 2021 (33 percent of total debt service on external PPG debt). Around one-third of total debt service to private creditors during this period is for international bonds.

Since the onset of the crisis, many DSSI-eligible countries have seen several sovereign credit rating and outlook downgrades. For Pakistan, specifically, Moody’s credit rating agency put the economy under review for downgrade in May and June after Pakistan requested bilateral debt service suspension from G20 countries.

As of September 21, 2020, thirty-two countries have provided detailed bilateral debt service payments due between May 1 and December 31. For these countries, the total debt service under the DSSI is estimated at $4.8 billion, while Angola and Pakistan account for more than 56 percent of this amount.

Pakistan is also one of the four countries that were facing high debt vulnerabilities even before the Covid-19 crisis. The other three countries are Angola, Mongolia and St. Lucia.

While Pakistan already provided the initiative with detailed information about the external debt on a loan-by-loan basis, several counties requested more time to provide comprehensive and accurate data of their debt portfolios, which is expected to be received from each beneficiary country.

The report also mentioned that of 14 countries with protracted breaches of solvency indicators under the baseline (defined as breaches of solvency indicators over 5 years and more), 12 are accompanied by protracted breaches of liquidity indicators.

Similarly, as highlighted in the most recent IMF staff reports on these countries, two eligible market access countries (Pakistan and St. Lucia) are projected to breach the benchmarks for both debt-to-GDP and gross financing needs for almost the entire projection period of 5 years.

For Pakistan, much of the external creditor base comes from outstanding Eurobonds. The document said that of the 73 DSSI-eligible countries, 23 economies have outstanding Eurobonds, totaling nearly $71 billion at end-July 2020. For these countries, bondholders constitute a large share of the external creditor base.

The stock of Eurobonds is concentrated in a few economies with Nigeria, Ghana, Angola, Côte d’Ivoire, Kenya and Pakistan accounting for over 70 percent of the total amount. However, as a percentage of GDP, Pakistan’s borrowing from the international bond market has been much lower as compared to the other 22 countries. Pakistan’s borrowing is approximately 13 percent of the GDP, landing it close to the bottom tier on this list.