Pakistan Fails to Secure $9 Billion in Debt Rollovers

Introduction

An official report from Pakistan’s Ministry of Economic Affairs has confirmed a critical shortfall in the government’s foreign funding efforts. The report, published on Tuesday, revealed that the government managed to secure only $426 million from international lenders in July, falling far short of the $9 billion in debt rollovers required to maintain financial stability.

Debt Rollovers and IMF Bailout Package

The disbursement report highlighted that no loans were secured from foreign commercial banks or bilateral creditors, which are crucial sources the government is desperately seeking to tap for the necessary foreign funding to remain solvent. The rollovers of cash deposits from China, Saudi Arabia, and the United Arab Emirates (UAE), as well as new loans from foreign commercial banks, are prerequisites for the International Monetary Fund’s (IMF) approval of a $7 billion bailout package.

The Ministry of Economic Affairs listed $5 billion in Saudi Arabian debt and $4 billion in Chinese debt as part of the government’s rollover plan. However, the $3 billion UAE deposit is accounted for on the central bank’s balance sheet. No disbursements were made against these loans in July.

Delayed IMF Approval and Debt Sustainability Concerns

Initially, the IMF scheduled the approval of the $7 billion program for August 30 but postponed it due to the government’s failure to secure the necessary rollovers. This report marks the first official confirmation of the failure to materialize these transactions. The IMF’s new Extended Fund Facility (EFF) assumes that Pakistan will stay current on its external and domestic debt repayments. However, the inability to secure the $12 billion cash deposit rollover and a $4 billion commercial loan raises concerns about debt sustainability.

Despite the importance of these funds, both the IMF and the government have refrained from addressing the urgent need for debt restructuring.

Potential Relief from Saudi Arabia

Sources indicate that if Pakistan and Saudi Arabia finalize the sale of 15% shares in the Reko-Diq mining project by early September, Saudi Arabia may expedite Pakistan’s $5 billion rollover request and approve an additional $1.2 billion oil financing facility. Notably, this facility is not included in the government’s $19.2 billion total borrowing plan for the current fiscal year, though Finance Minister Muhammad Aurangzeb has requested it from his Saudi counterpart, Muhammad Al-Jadaan.

Last week, the finance minister stated that the IMF might approve the new package in September, though no specific date was provided. Any further delays in the IMF’s approval could complicate matters for the government, particularly with a projected shortfall in Federal Board of Revenue (FBR) tax collections.

Challenges with Tax Collection and Fiscal Targets

The government has already imposed record new taxes amounting to Rs1.8 trillion, but the Federal Board of Revenue (FBR) faces a significant challenge in meeting its tax collection target. The FBR has a target of Rs898 billion for this month but has only collected Rs575 billion as of Tuesday. This leaves Rs323 billion to be collected in just four days, an average of Rs81 billion per day.

Internal assessments suggest a possible shortfall of around Rs80 billion, which the FBR is now attempting to cover by taking advances from commercial banks. Prime Minister Shehbaz Sharif has appointed Rashid Langrial as the new FBR chairman, and this will be his first major test in meeting the target and fulfilling the expectations of the PM’s Office.

Foreign Loan Disbursements and Future Borrowing Plans

The Ministry of Economic Affairs report also detailed some loan disbursements for July. The World Bank provided a $132.4 million loan, with $11 million allocated to the National Transmission and Dispatch Company (NTDC), $80 million for two flood-related projects in Sindh, and $26 million for a Punjab agriculture project.

The Asian Development Bank (ADB) disbursed $52 million for various schemes, while China provided $97 million for the Pakistan Multi-Mission Satellite project. Additionally, the country received $128 million from the Naya Pakistan Certificates, albeit at a high cost. However, no disbursements were made against the annual projected budget estimates of $3.8 billion from foreign commercial banks.

Conclusion

The government’s failure to secure the necessary debt rollovers and its reliance on uncertain foreign funding sources have placed Pakistan’s economic stability in jeopardy. With the IMF bailout approval delayed and potential fiscal challenges ahead, the government faces an uphill battle to maintain financial solvency and meet its economic targets. The coming weeks will be crucial as Pakistan negotiates with international creditors and awaits the IMF’s decision on the $7 billion package.