Pakistan informs IMF its debt serving costs may go up to PKR 8.5 trillion

ISLAMABAD: Pakistan has informed the International Monetary Fund (IMF) that its debt servicing costs may escalate to Pakistan Rupee (PKR) 8.5 trillion, reflecting a PKR 1.2 trillion deviation from the allocated budget, The Express Tribune reported.

The country faces challenges in securing around USD 6.5 billion in external debt this year due to unfavourable economic conditions.

To address this external financing gap, Pakistani authorities have requested the IMF's assistance, despite their ongoing engagement with the IMF programme. Excessive spending on interest payments and difficulties in raising external debt in challenging economic conditions are the central concerns in the discussions for a USD 710 million loan tranche, according to The Express Tribune.

The IMF has raised questions and will provide its assessment next week. Government sources revealed that the IMF staff anticipates Pakistan's budget deficit to surge beyond initial estimates due to the mounting debt servicing costs.

Talks have also covered Pakistan's debt management office, with concerns raised about understaffing and a reliance on foreign-funded consultants.

It was conveyed to the IMF that the interest cost might rise to PKR 8.5 trillion during the current fiscal year, with efforts being made to lower this projection through adjustments in debt maturity profiles.

A substantial portion of this debt cost is attributed to domestic debt servicing, while external debt servicing exceeds PKR 900 billion.

The IMF will review these figures and provide its assessment of the revised budget deficit and external financing requirements. Both parties are negotiating for a USD 710 million second loan tranche as part of a USD 3 billion short-term programme, as reported by The Express Tribune.

The IMF's outlook is that raising debt with 12-month treasury bills will have an accounting impact but won't significantly affect the overall debt cost. The IMF programme is set to conclude in April next year.

Due to higher interest payments, the projected federal budget deficit of PKR 7.5 trillion could reach a record PKR 8.7 trillion, even with other estimates remaining unchanged.

Pakistan's external loans of around USD 6.5 billion will depend on market conditions. The government has requested the IMF's assistance in arranging these loans, with external financing requirements below USD 24 billion, adjusted for a lower projected current account deficit and the rescheduling of Chinese loans. Some of the shortfall may be offset by reducing imports to further lower the current account deficit.

The prospects for raising debt through Green Bonds are uncertain, despite discussions on its rules at the Special Investment Facilitation Council (SIFC) level, The Express Tribune reported.