Muneeb ur Rehman

Among the myriads of economic challenges facing Pakistan, the ballooning external debt is the most critical one. “The country can possibly restructure external bilateral and multilateral debts through consultations with its creditors,” said Aliya Hashmi, a former member of the Monetary Policy Committee (MPC) of the State Bank of Pakistan. Debt restructuring refers to the process of modifying the terms of the country's existing debt obligations in order to make it more manageable and sustainable. According to Pakistan Economic Survey FY23, the total external public debt of the country stood at Rs24,171 billion, and that of public debt at Rs59,247 billion.

Talking to WealthPK, Aliya Hashmi said that negotiations for debt restructuring should aim at lowering the interest rates on the debt, which can lead to lower debt servicing costs. “The interest cost on foreign debt amounted to Rs475 billion in FY23, reflecting a 115% increase when compared to the interest expenses on foreign debt during the previous fiscal,” she said. “The growing debt-to-GDP ratio compels the government to allocate a large chunk of the annual budget to debt servicing, thereby leaving little space for other expenses.”

She said another debt restructuring tool for Pakistan was ‘debt-for-equity’ swaps. “This tool can be used to exchange debt for the country’s assets, such as shares in state-owned enterprises or commitments to environmental conservation,” she added. Aliya Hashmi underscored that the key goal of managing public debt should be to meet the government's gross financing needs while minimising costs over the medium to long-term. In FY23, the government rolled over $3,000 million in deposits each from China and Saudi Arabia, which were utilised for budgetary support. Of the total bilateral debt, which stands at $38.8 billion, the largest portion, amounting to $25 billion, is owed to China.

Against this backdrop, Aliya Hashmi expressed optimism regarding the debt restructuring agreement with China, considering the longstanding friendly relations between the two nations. She stressed that debt restructuring should be a policy option that Pakistan can undertake in order to get some relief in dispensing other financial responsibilities.

Credit: INP-WealthPk