MACROECONOMIC INDICATOR

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Selected by Zeeshan Ahmed Khan
(economistzeeshan@hotmail.com)

July 25 - 31, 2005
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EXTERNAL DEBTS AND LIABILITIES

 

 

Keeping all parameters at same pace, we conclude that debt volume will decline significantly in coming future

Pakistan's total stock of external debt and foreign exchange liabilities grew at an average rate of 6.2 percent per annum during 1990-99. Pakistan's external debt and liabilities had reached an untenable level of $37.6 billion by the end of the 90's as compared to $21.6 billion in the early 90's, posing a serious threat to the economic prospect of the state.

The main causes of the rapid growth in the external debt were the persistent current account deficit, thoughtless use of borrowed money, stagnant exports and a declining flow of foreign exchange.

Pakistan's debt burden as percentage of foreign exchange earnings was around 256 percent in 1989-90 that rose to 335.4 percent in 1998-99. This statistic shows that the foreign exchange earnings were almost stagnant during the period of 90's. All these factors reduced the country's ability to pay its debts; for this reason Pakistan was forced to acquire expensive loans. But now, over the last five years, effort has been made to achieve debt sustainability in the country and as a result, Pakistan has witnessed a current account surplus over the last three years in a row.

In the end of 90s Pakistan's economy was at the verge of default, and Pakistan was acquiring most of the loans with the sole purpose of debt servicing. Due to default fear, Pakistan's credit rating was touching danger line. Therefore, the country faced very hard terms of loans. Now, this factor has been eliminated and with high foreign exchange reserves, we are having soft terms for loans. Getting rid from IMF has also added some repute to Pakistan, besides contributing towards betterment of credit rating.

Following a consistent approach of debt reduction, Pakistan has succeeded in reducing the rising trend in external debt and foreign exchange liabilities. Pakistan's external debt and liabilities have declined by $ 1.24 billion - down from $ 37.86 billion in 1999-00 to $ 36.62 billion by end-March 2005. The surplus in current account coupled with a continued build up in foreign exchange reserves and the higher foreign exchange earnings, the pre-payment of expensive debt and debt write-off are the major factors responsible for the reduction in the total stock of debt.

The data of Pakistan's external debts and liabilities shows that the country's external debt and liabilities have reduced from 51.7% in 1999-00 to 33.1% in 2004-2005. Following the same trend, the debt and liabilities as part of foreign exchange earnings has also reduced from 297.3% in 1999-00 to 145.9% in 2004-2005.

The external debt and liabilities in the year 2004-2005 is estimated at $36.62 billion, showing an increase of $1.362 billion as compared to 2003-2004. The main reason of this rise in debt stock is the exchange rate adjustments and the net inflow effect.

One of the most important indicators of measuring the country's ability to pay its loans is Debt/GDP ratio. Fortunately, this ratio has declined very favorably for Pakistan in the last few years. All other indicators are also showing positive movement in this regard. Thus, keeping all parameters at same pace, we conclude that debt volume will decline significantly in coming future.

 

 

TRENDS IN EXTERNAL DEBT BURDEN

YEAR

EXTERNAL DEBT & LIABILITIES
AS % OF GDP

EXTERNAL DEBT & LIABILITIES
AS % OF FEE*

1999-00

51.7

297.3

2000-01

52.1

259.5

2001-02

51.0

236.8

2002-03

43.1

181.2

2003-04

36.7

164.6

2004-05 +

33.1

145.9

* Foreign Exchange Earnings + July-March

Source: SBP and Finance Division

 


 

EXTERNAL DEBT AND FOREIGN EXCHANGE LIABILITIES
($ BILLION)

 

End June 1990

1999

2000

2001

2002

2003

Mar 2004

2005

Total External Liabilities

21.9

37.6

37.86

37.16

36.53

35.47

35.26

36.62

 


 

KEY DEBT INDICATORS

 

June 1999

March 2005

External Debt & Liabilities /GDP

66

33

External Debt & Liabilities /Exports

517

262

External Debt& Liabilities /Foreign Exchange Earnings

346

142

External Debt Service due/Exports

36.1

18.8

External Debt Service/Foreign /Exchange Earnings

24.1

10.3

External Debt & Liabilities /Foreign Exchange Reserves

22.3

3.4

Concessional Debt/External Debt

55

66

 


 

AVERAGE TERMS OF NEW LOAN COMMITMENTS AFTER REVIVAL OF ECONOMY:

 

2000

2003

Interest rate (%)

6.3

1.7

Maturity (years)

12.5

19.9

Grace Period (years)

4.8

3.0

Grant Element (%)

19.9

52.7