Pakistan Seeking To Reschedule $10 Billion Worth Of Debt Owed To Paris Club: Report

Pakistan is seeking the rescheduling of $10 billion worth of debt owed to the Paris Club – a group of wealthy nations, in a move aimed at creating breathing space for the cash-strapped government which is in the midst of efforts to rehabilitate more than 33 million people hit by devastating floods, according to a media report on Saturday.

Prime Minister Shehbaz Sharif also requested International Monetary Fund (IMF) Managing Director Kristalina Georgieva to provide upfront with the remaining loan of nearly $3 billion in November this year, The Express Tribune reported Finance Minister Miftah Ismail as saying on Friday.

The debt rescheduling announcement was made by the finance minister through a micro-blogging site to soothe nerves in global capital markets where investors were jittery over news that Pakistan was seeking debt relief covering the entire debt stock including commercial loans.

“Given the climate-induced disaster in Pakistan, we are seeking debt relief from bilateral Paris Club creditors,” the finance minister said in a tweet from New York.

The minister added, “we are neither seeking nor do we need, any relief from commercial banks or Eurobond creditors”.

It is the third time that Pakistan’s debt will be rescheduled by the 17 members of the Paris Club in the past 20 years. Earlier, after Pakistan became an ally of the US in the war against terror, the Paris Club rescheduled loans for 15 years. For the second time, the debt was rolled over for three to four years in the aftermath of the Covid-19 outbreak.

“We are planning to seek the deferment of Paris Club loans for a few years and then would request member countries to swap the debt with climate change financing initiatives,” said Ismail.

Pakistan’s public sector external debt stood at $97 billion as of June this year, of which it owed $9.7 billion to the Paris Club, according to the Ministry of Finance documents.

This year, Pakistan is scheduled to return $1.1 billion of Paris Club debt out of the total of $10 billion. Some $400 million of Japanese debt is maturing this year, followed by $300 million of France, $200 million of the US and around $100 million of Germany, according to the economic affairs ministry.

The rescheduling of $1.1 billion Paris Club debt will immediately create breathing space of about Rs260 billion that the country can utilise to help flood victims.

Out of the $10 billion, a sum of $8 billion is owed to five countries – Japan $4.6 billion, France $1.6 billion, Germany $1.3 billion, the $1.1 billion and South Korea $415 million, according to the documents.

Ismail’s statement marks a departure from his earlier stance when he ruled out the possibility of debt rescheduling.

The finance minister said it was possible that the Paris Club member countries could roll over their bilateral debt without putting the condition of first getting the commercial loans rolled over.

He said Pakistan would pay back the $1 billion bond due in December, which was on time, as the country had no plan to seek the commercial loan rollover. “We have been servicing all our commercial debt and will continue to do so.”

The minister said Pakistan’s Eurobond that was due between now and 2051 was only $8 billion, which was not a large burden. “A significant portion of our debt is from friendly countries, who have said they will roll over their deposits again.”

Meanwhile, Prime Minister Shehbaz Sharif met Georgieva two days ago with a request to relax conditions and release the remaining loan amount under the Extended Fund Facility.

The Prime Minister requested the IMF chief to release the remaining $3 billion upfront, Ismail said, adding that Pakistan was hopeful that the IMF would respond positively as the country was not in a position to meet the conditions and then get the remaining loan in three tranches.

“Our expectation is that the IMF will club at least two tranches and release the amount upfront,” the minister said.

The largest loan of $200 million was given by Saudi Arabia under the oil-on-deferred-payment facility during the two-month period. Of the rest, the World Bank gave $118 million and the Asian Development Bank $71 million.

IMF’s $1.1 billion tranches were released in September, which would be part of the next monthly debt bulletin.

However, the Paris Club debt rescheduling alone will not ease Pakistan’s problems. The country also owes $16 billion to non-Paris Club countries, mainly China to which Islamabad has to pay $14.5 billion.

Overall, Pakistan faces a mammoth challenge to service over two-thirds, or $66 billion, of the total external public and publicly-guaranteed repayments in five years.

The $66 billion external debt repayments are exclusive of the interest payments on these loans that are estimated at $9.4 billion over the same period, according to The Express Tribune.