Pakistan needs to pay $77.5 bn in external debt; risk of default 'real'

Islamabad: Pakistan needs to repay a whopping USD 77.5 billion in external debt from April 2023 to June 2026 and the cash-strapped country may face "disruptive effects” if it ultimately defaults, a prominent US think tank has warned.

The analysis published on Thursday by the United States Institute of Peace (USIP) warned that amid skyrocketing inflation, political conflicts, and rising terrorism, Pakistan is facing the risk of a default due to its massive external debt obligations, the Geo News reported on Friday.

Pakistan, currently tackling a major economic crisis, is grappling with high external debt, a weak local currency and dwindling foreign exchange reserves.

The USIP report called the USD 77.5 billion that Pakistan needs to repay in external debt from April 2023 to June 2026 a “hefty amount” for a USD 350 billion economy.

It stated that if Pakistan ultimately defaults, there will be a “cascade of disruptive effects”.

In the next three years, the debt-struck country has to make major repayments to Chinese financial institutions, private creditors and Saudi Arabia.

From April to June 2023, Pakistan faces near-term debt repayment pressure as the external debt servicing burden is USD 4.5 billion, the report said.

According to the report, substantial repayments are due in June, when a USD 1 billion Chinese SAFE deposit and a roughly USD 1.4 billion Chinese commercial loan would mature.

Pakistani authorities hope to convince the Chinese to refinance and roll over both debts, the report said, noting that the Chinese government and commercial banks have done so in the past.

Even if Pakistan manages to meet these obligations, the next fiscal year will be more challenging as the debt servicing will rise to nearly USD 25 billion, the report said.

Pakistan is awaiting a much-needed USD 1.1 billion tranche of funding from the Washington-based International Monetary Fund, originally due to be disbursed in November last year.

The funds are part of a USD 6.5 billion bailout package the IMF approved in 2019, which analysts say is critical if Pakistan is to avoid defaulting on external debt obligations.

The IMF programme, signed in 2019, will expire on June 30, 2023, and under the set guidelines, the programme cannot be extended beyond the deadline.

Pakistan and the IMF have been negotiating the programme's resumption for months but have yet to reach an agreement.

There is no easy solution available to fix the ailing economy of Pakistan, and the government is of the view that they have taken all the tough decisions for reviving the stalled IMF programme.