External Debt and Its

Implications on
Pakistan
Presented by: Sheheryar Khan, 26th STP Probationary Officer,
PITAD
Presented on: 08-11-2019
Sequence of the Presentation
• Definition
• Currency of the topic
• Problem of External Debt in Pakistan
• Issues & Implications
• Way Forward
• Conclusion
Definition
• "Gross external debt is the amount, at any given time, of
disbursed and outstanding contractual liabilities of
residents of a country to nonresidents to repay principal,
with or without interest, or to pay interest, with or
without principal“

International Monetary Fund

• Simple, colloquial definition
Currency of the Topic
External Debt in Pakistan
Impact of External Debt on
Pakistan
Potential Benefits of External Debt:

o Reducing the Investment-Savings gap

o Brings funds for spending on infrastructure and physical and

human capital

o Bridges fiscal deficit and helps government meet its financial

requirements
Impact of External Debt on
Pakistan
• 2013 to 2019: $60.9b to $106.3

• Why Debts are taken?

-> For the 2019-20 fiscal year, the government has projected foreign
debt servicing cost at about $7bn, including $2.23bn to commercial
banks, $1.9bn to multilaterals, $1.24bn to bond investors and $1.6bn
to Paris and non-Paris Club members.

-> Example: Fiscal year 2017-18 external debt requirement..

Current Account Deficit = $18b

External Debt Servicing = $10b.
Available financing = $12b.
Financing Gap = ?
Impact of External Debt on
Pakistan
• Menace of Debt Servicing

• Lack of spending on social sectors

-> Pakistan spends major chunk of its revenue to repay its debt while
the remaining 30% to 35% is left for expenditure on defence, health,
education, infrastructure etc. That is the reason why Pakistan faces
poverty and low standard of living.

-> Example of 2018-19: 39% of revenue went to debt servicing…More

than 1/3rd of the revenue!
Defence =23%, Public Order & Safety = 2.8%, Economic Affairs = 1.6%,
Education = 2%, Health = 0.3%, Housing = %

-> Ministry of Finance put the estimates for 2019-20 at 47%!

Future Outlook

• IMF released a report in July 2019 forecasting Pakistan’s future

external debt outlook.

• The International Monetary Fund (IMF) has said that Pakistan’s

external debt will peak to $130 billion within four years – a net
addition of $34.6 billion or 36.3% under the government of
Prime Minister Imran Khan.
• As against $95.4-billion external debt at the end of the
Pakistan Muslim League-Nawaz (PML-N) term, the IMF has
projected that the external debt may hit $130 billion by the
end of fiscal year 2022-23,
Future Outlook
• There will be a minimum net addition of $34.6 billion to the
external debt despite repayment of $48 billion in five years
during the tenure of the Pakistan Tehreek-e-Insaf (PTI)
government. This means that the PTI government will borrow
a whopping $83 billion in five years to service the old debt,
finance the current account deficit and build foreign exchange
reserves.
• the external debt as a percentage of gross domestic product
(GDP) could hit 60% - double than that of 2013 PMLN’s
government
CPEC External Loans
• Two options for Pakistan:

• -> Follow the Malaysian Mahatir Model

• -> Rescheduling by swapping debt with equity. Srilanka’s

Hambantota port is a case in point.
Way Forward

Tax Reforms

Foreign Investments

Exports
Way Forward

FRDL Act

Loan write-offs

Privatization
Q & A session

Thank you!