ISLAMABAD:
In a major policy shift, Finance Minister Ishaq Dar on Saturday said that the government was contemplating a move aimed at restructuring its external bilateral debt, setting the tone for any future engagement with the International Monetary Fund.
While addressing his post-budget news conference, Dar, however, ruled out domestic debt restructuring, saying “being a sovereign country, if you cannot meet your own currency requirement with regard to debt repayment, then it is a serious situation”.
Dar also admitted that the IMF’s 10th review programme was not possible any more. “We have done our work — after the budget process, we will talk to our bilateral partners,” said the finance minister while responding to a question about the debt restructuring.
“Under the current circumstances, such as the impact of the Covid pandemic and natural disasters, Pakistan can seek debt restructuring from the bilateral creditors,” he said and added that Pakistan would go on the debt restructuring path, either with or without the IMF programme.
The disclosure marks the first official acknowledgement about the country’s debt quagmire – that it cannot come out of the situation without passing through the difficult and painstaking debt restructuring process. The minister clarified that the debt restructuring did not mean that Pakistan would declare a default.
Many believe that soft debt restructuring would pave the way for early finalisation of a new IMF programme, as chances for the revival of the current $6.5 billion programme have almost diminished.
On May 27, the Ministry of Finance had strongly reacted to the proposal of debt restructuring, but has now changed the position within two weeks. The ministry had said that “the multilateral and bilateral creditors are engaged with Pakistan and none has assessed that Pakistan should default”.
Read Sindh CM announces Rs2.2trn budget with deficit of Rs37.7bn
However, international financial institutions, investment banks and independent economists had been urging Pakistan to restructure its debt, particularly with China.
The Pakistan Economic Survey 2023 showed that the country’s external public debt, excluding the IMF, stood at $84.3 billion. Out of this, the bilateral debt was $38.8 billion and the majority of it — $25 billion –- is owed to China. In the past, China has ruled out any debt restructuring.
Dar emphasised that Pakistan would not seek debt restructuring of the multilateral and the Paris Club debt. Pakistan currently owes $36.8 billion to the multilateral creditors, excluding the IMF, and $8.8 billion to the Paris Club countries.
Dar also clarified that Pakistan would not seek “haircuts or write-offs” but would request extension in the repayment periods.
In the next fiscal year 2023-24, Pakistan is scheduled to make $25 billion debt repayments to the bilateral and the multilateral creditors.
“As far as the Paris Club rescheduling, we have no such plan on our menu. We will not go for rescheduling multilateral debt. We will make the payments on time and when they become due. I don’t think it is a dignified way to go and tell them that we cannot pay. That means you’re declaring that you are not in a position to pay,” he added.
While responding to another question, Dar ruled out talks for domestic debt rescheduling. “Rescheduling the domestic debt at present is foolishness, especially at the 21% interest rates.”
He said that once the policy rate reduces to a reasonable level, then the short-term loans can be converted to long term. Dar said he did not think Pakistan has any issue with its domestic debt. And when it comes to external debt, “we cannot print dollars, so the country needs to live within its means”, he said.
He added that “it is unfortunate that a number of measures have been taken which have dented the government’s maneuverability in this regard, which needs to be reviewed –- in a veiled reference to the central bank law that has caught the hands of the federal government and thrown it before the commercial banks.
Dar pointed out that the previous government had amended the SBP law, which resulted in benefit to the commercial banks and an increase in the policy rate. He stressed the need to review this and consider corrective actions.
The minister said that he was expecting completion of the 9th review of the IMF programme, but said that there were no more chances for the completion of the remaining 10th and the 11th reviews of the IMF programme.
Out of the $6.5 billion, the IMF has not yet disbursed $2.6 billion which, the government has reflected against the next fiscal year’s inflows. But Dar said that the IMF inflows would not materialise as the programme is going to end on June 30.
The government has also reflected $3 billion new loans from Saudi Arabia and the UAE in the next fiscal year, which it wanted to secure to complete the 9th review before the end June.
Read More Govt bets on relief, amnesty
Dar said that the budgeted amounts of loans of $2 billion from Saudi Arabia and $1 billion from the UAE are the commitments announced by the two countries earlier. “We expect that if the commitments are not realised till June 30, they will come next year,” he said.
Dar also said that Pakistan’s economy was out of the vulnerable phase. Pakistan faced a deeper and steeper economic vulnerability, which it had successfully overcome, resulting in a halt to any further decline, claimed the finance minister.
Drivers of the growth
Dar said that proper and transparent implementation of the Rs950 billion PSDP would facilitate the 3.5% GDP growth rate with ease. The minister shared the government’s aim to bring about an agricultural revolution, underlining that the country possessed significant untapped potential in this sector.
Dar described the budget as being different from traditional budgets, emphasising its focus on progress linked to economic growth.
Responding to a question, Dar clarified that no government members had made any statements regarding delay in elections. He explained that if any coalition members made such statements, it was within their right to express their views.
Dar emphasized that the budget allocation of Rs42 billion for general elections was made based on the consultations with the Election Commission of Pakistan. He stated that the government could not dictate its coalition partners and prevent them from making statements.
At one point, the finance minister said that the Constitution provides an extension in the tenure of the assembly.
Regarding statements made by leaders of other parties, Dar mentioned that the government would engage in discussions with them, reiterating that the government had no intentions regarding the matter.
The minister said that the next year’s Rs1.804 trillion defense budget was low compared to the regional countries.
