Pakistan to repay another $600m for maturity of Eurobond

ISLAMABAD: After making heavy repayments of $750 million on maturity of Eurobond last month, Pakistan will have to pay back another over $600 million on account of maturity of two major repayments during the ongoing month amid economic managers’ efforts for avoiding depletion of foreign currency reserves from existing levels of $21.7 billion, The News has learnt.

During Musharraf regime in 2007, Pakistan had launched $750 million Eurobond at rate of 6.87 percent which got matured in last week of May 2017. “We had paid back $750 million Eurobond on its due maturity date,” a senior official of Finance Division confirmed to The News here on Wednesday.

It is not yet decided whether Islamabad will pay back another $500 million to China obtained into safe deposit or will make fresh request for rollover for another year. This $500 million will be maturing in June 2017 as Pakistan had returned back $500 million to China on account of safe deposit last year.

Keeping in view growing pressures on foreign reserves, Pakistan is likely for making request to China for another rollover of $500 million Safe Chinese Deposits, added the official.

“Pakistan will have to pay back total $608 million including short term loan of Islamic Development Bank (IDB) to the tune of $254 million and another $354 million on account of loan obtained from commercial banks within June 2017. The Finance Ministry is struggling to maintain the foreign currency reserves at the existing level of $21.7 billion,” official sources confirmed to The News here on Wednesday.

The top official said that they were fully aware of upcoming repayments on external front and they would ensure repayments in timely manner. “We will not allow depletion of foreign currency reserves below $21 billion mark,” said the official.

Pakistan had obtained $1 billion loan from China’s commercial bank for paying back $750 million Eurobond which got matured in last week of May 2017. Pakistan’s foreign currency reserves had touched peaks to the level of $24.025 billion on October 16, 2016 but afterwards it had now declined to $21.7 billion on May 26, 2017.

Pakistan’s gross public debt stood at Rs 20873 billion as at end March 2017 while net public debt was standing at Rs18893 billion. Gross public debt recorded an increase of Rs1194 billion during first nine months of current fiscal year. Out of this total increase, increase in domestic debt was Rs1121 billion while government borrowing from domestic sources for financing of fiscal deficit was Rs1018 billion.

This differential is mainly attributed to increase in government credit balances with the banking system. Similarly, increase in external debt contributed Rs73 billion in public debt. Revaluation gain on account of appreciation of US dollar against other foreign currencies reduced the impact of net external inflows on external public debt portfolio.

Recently, Senator Ayesha Haroon belonging to ruling PML-N had proposed amendment in the definition of public debt by creating differentiation between gross and net debt during the proceedings of the Senate Standing on Finance. The Senate panel had recommended her amendment and now House would be adopting to forward it to National Assembly.

According to Ayesha Raza’s proposal, the debt to GDP ratio is now being shown in net terms rather than gross terms. In order to clarify and remove any ambiguity it is important that the Fiscal Responsibility and Debt Limitation Act may be amended to the definition of total public debt. She suggested amendment to be added in clause 2 (1) of FRDLA by inserting that total debt of the government is public debt less accumulated deposits of the federal and provincial governments with the banking system.

The high-ups of the Debt Office of Finance Ministry also supported this idea as it differentiates between gross and net debt. However, the independent economists criticised the government for changing definition of public debt through last Finance Bill 2016-17 under which certain portion of debt such as foreign liabilities were excluded in order to show lower side of the debt burden. This change of goalpost will serve no purpose, argued the economists.

Article source: https://www.thenews.com.pk/print/209493-Pakistan-to-repay-another-600m-for-maturity-of-Eurobond