The burden of external debt on Pakistan has increased by around Rs. 6 trillion due to the depreciation of the Pakistani Rupee (PKR) against the US Dollar (USD) during the last three-and-a-half months.
Sources in the Ministry of Finance told the scribe that the dollar has appreciated by almost Rs. 45.44 against the rupee during the tenure of the new coalition government. This is called the loss in calculations though additional counterpart rupee has to be generated more in the due payments after the depreciation.
The opposition parties had submitted a No-Confidence Motion in National Assembly against the then-Prime Minister, Imran Khan, on 8 March and on 10 April, after which he was removed from office.
This free fall of the local currency against the dollar has unprecedentedly increased the external debt burden on the country during the tenure of the new coalition government. Delay in IMF deal, political situation, global oil prices and higher external fuel payments led to fall in rupee value.
As per the data of State Bank, Pakistan’s external debt and liabilities reached $129 billion on 31 March 2022, according to the State Bank of Pakistan (SBP). Out of the total debt and liabilities, the government’s external debt was recorded at $100 billion on 31 March. The external loans of banks had touched $5.8 billion and Public Sector Enterprises (PSEs) reached $7.3 billion during the period. The foreign debt stock of the private sector was recorded at $11 billion and the debt liabilities to direct investors stood at $4.2 billion by the end of March 2022.
In terms of the PKR, the total debt stock of Pakistan was recorded at Rs. 53 trillion, including Rs. 21.54 trillion of the government external debt in March. It is pertinent to mention that by the end of March, the SBP had reported an exchange rate of Rs. 183.5 against the USD. This Rs 21.54 trillion is likely to be approximately Rs 27.54 billion in rupee terms.
However, after March, it appreciated in value by Rs. 45 due to the political uncertainty, the depreciation of the forex reserves due to heavy payments, the windup of the International Monetary Fund (IMF) loan program, and some other factors that triggered the forex market.
Due to this depreciation of the rupee, Pakistan’s external debt stock has increased by around Rs. 6 trillion without any fresh borrowings, sources said.
Any reversal in rupee value may also bring back this “loss in calculation” and this enhanced debt burden can reduce.
Experts believe that the wave of the depreciation of the PKR has not only increased the debt burden on the country but also fueled the inflation rate during the last three months. They said that the currency devaluation is translated into energy prices which largely contribute to the inflation rate.
The inflation rate has increased from 11 percent to 21 percent in three months, according to the Pakistan Bureau of Statistics (PBS). The data shows that the currency depreciation was also a key contributor to pushing the inflation rate up to the highest level after 13 years.
Pakistan is following a market-determined exchange rate system in which trade deficit and market influencing news make a lot of impact on currency changes. Fuel and other import payments with current account deficit has also sky rocketed in last one and half year.
While commenting on the situation, the former Advisor of the Ministry of Finance, Dr. Khaqan Najeeb, said that the recent adjustment of the PKR is partly influenced by uncertainty due to the election results coupled with the Fitch downgrade news. Another important factor is the payments of Letters of Credit (LCs) from the high level of imports for energy in May and June 2022.
It is also important that SBP intervention to smoothen the disorderly movement is constrained due to the low forex reserves position as well as the bindings of international considerations.
Lastly, the dollar appreciation is also a factor in the rupee’s slide. The forex market may stabilize after expected improvement in trade numbers and revival of the IMF Program which could be finalized by the end of August.
