KARACHI, Aug 26: Despite the fact that Pakistan prepaid $1.17 billion expensive Asian Development Bank debts in the last fiscal year
, its total external debt did not decline: the stock of external debt rather rose slightly to $33.367 billion at end-June 2004 from $33.352 billion at end-June 2003.
Data released by the State Bank show, however, that external debt and foreign exchange liabilities combined declined to $35.318 billion at the end of FY04 from $35.474 billion at the end of FY03.
What possibly led to a nominal increase in external debts in FY04 despite prepayment of $1.17 billion ADB loans was a big decline in the value of the US dollar. The US unit lost 5.9 per cent value against euro and 9.6 per cent against the UK pound sterling between July-June 2003-04.
"That had an impact on the book value of the stocks of our external debt," said a source close to the Ministry of Finance. How the ministry tackles this issue in future depends on how efficiently it manages external debt profiles.
Much would also depend on who is going to be the next finance minister after Shaukat Aziz takes over as the prime minister. Word is taking rounds in the banking circles that Mr Aziz would keep the portfolio of finance minister with him at least for some months after becoming the head of the government. "In that case external debt management would certainly improve," said a senior foreign banker.
SBP data show that Pakistan spent $5.279 billion on external debt servicing in fiscal year July-June 2003-04. The amount was higher by $930 million or 21 per cent than what it had spent a year ago - $4.349 billion.
Despite such a huge outflow of foreign exchange through debt servicing the official forex reserves did not decline: the official reserves or the reserves held by the State Bank rather rose to $10.564 billion from $9.529 billion.
This seems to be quite an achievement particularly because the country rolled over a lesser amount of external debt and liabilities. In FY04 Pakistan rolled over $1.3 billion debt and liabilities, down $608 million or 32 per cent from the FY03 roll- over of $1.908 billion.
In the last fiscal year the federal government retired $1.17 billion ADB debts ahead of schedule and Pak-Arab Refinery Co (Parco) pre-paid $350 million Japanese debt by borrowing dollars from a consortium of banks.
But at the same time Pakistan also borrowed $500 million from global capital market through eurobonds in the last fiscal year. After spending $5.279 billion on debt servicing and after rolling over $1.3 billion of debt and liabilities, Pakistan still had $35.318 billion worth of external debt and liabilities at the end of FY04, slightly lower than $35.474 billion at the end of FY03.
What reduced the volume of external debt and liabilities was a reduction in foreign exchange liabilities and not in external debt: The liabilities fell to $1.951 billion at end-June 2004 from $2.122 billion at end-June 2003. But total external debt rather inched up to $33.367 billion from $33.352 billion during this period.
SBP data show that the foreign exchange liabilities fell due to reduction in the stock of special US dollar bonds and foreign currency bonds launched by National Highway Authority and National Construction.
Pakistan was burdened with $37.159 billion of external debt and liabilities at the end of June 2001. But steady inflows of foreign exchange after the September 11, 2001 attacks on the US enabled the country to make a gradual reduction in the same.
The stock of external debt and liabilities fell to $36.532 billion at end-June 2002 and then to $35.474 billion at end-June 2003 before reaching $35.318 billion at end-June 2004.
