Morning Briefing for Feb 27, 2012 – Standard Capital

Karachi: Economic malaise to continue as external debt servicing now crosses US$10 billion

On Friday Standard Capital covered the fact that economic fundamentals are worsening especially due to battered real economy.

According to Standard Capital, today Standard Capital would add another alarming factor which is related to country’s totalled external debt servicing which has crossed US$10 billion spot during 1HFY12 (Jul – Dec) mainly due to increasing burden of foreign debt and massive repayments of scheduled banks’ borrowing. Standard Capital sees government is living beyond its means and espousing lot of non‐development expenditure before the advent of general elections of 2012.

As per newspaper reports, payments under external debt and liabilities servicing is increasing and the country has paid over US$10 billion under the head of external debt and liabilities servicing of principal and interest payments which Standard Capital feels is a matter of great concern.

SBA’s not available to adjust future repayments
Since Pakistan is not recipient of any International Monetary Fund (IMF) tranche and hence there are serious concerns over massive and ever rising spending on debt servicing. Standard Capital has covered the fact on last weekend that Pakistan’s foreign exchange reserves are depleting from the level of US$ 17bn and in the absence of standby agreement (SBA) sponsored by IMF in 2008, foreign reserves shall continue to deplete due to higher incidence of foreign payments.

No immediate default like situation but still situation worsens
Now Pakistan has to adjust US$1.2 billion of SBA during Jan‐June in three instalments in 2HFY12. Even though, Pakistan is stated to be in a manageable position and there is no imminent risk of default like situation. But this situation cannot continue for longer since Pakistan’s real economy is haemorrhaging due to poor real economy where industries are hampered by energy deficit crisis.

SBP figures
It’s being reported in newspapers, citing State Bank of Pakistan (SBP) that the Pakistan’s totalled external debt servicing has reached at US$ 10.4 billion mark during 1HFY12 owing to high scheduled bank’s short term borrowing and its repayment. Totalled external debt and servicing, during the period, includes US$ 9.828bn of principal and US$528 million of interest payment. The matter of concern is the increasing incidence of debt servicing of last year in which external debt servicing was at US$ 8.9 billion including US$ 7.8bn of principal amount and US$ 1.07 billion of interest payment.

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