KARACHI: Pakistan paid $5.3 billion in debt servicing during the fiscal year 2015-16, the State Bank of Pakistan (SBP) said on Thursday, as compared to $5.417bn in the preceding fiscal year.

Though the total amount was slightly less, the interest paid during 2015-16 rose to $1.339bn while the repayment of principal amount decreased to $3.971bn.

The interest and principal paid in 2014-15 were $1.173bn and $4.244bn, respectively.

Govt considers taking more loans to pay back old ones

The higher interest paid in 2015-16 indicates that the cost of debts has increased. The amount of interest is set to increase further once the country starts paying back the loans taken at high rates.

In the last week of September 2015, the government issued a new 10-year bond worth $500 million in the international Eurobond market at a coupon rate of 8.25 per cent.

The finance ministry said the bonds were issued for $500m in order to cover the forthcoming maturity in March 2016 of a bond issued in 2006. The 8.25pc interest rate attracted severe criticism and it was said that the base rate in the United States at that time was just 1pc while yield on junk bonds were 6pc.

Pakistan’s external debt has increased sharply during the last three years that would cost more to the country struggling to meet the current account deficit, which stood at $2.4bn in 2015-16.

The deficit continued to exist despite record inflows of $20bn remittances reflecting the poor health of the economy, particularly on external fronts. Exports have been declining for two years while imports have been increasing despite a massive cut in the oil import bill that saved about $4.5bn in 2015-16.

International oil prices are hovering around $42 to $45 a barrel, a sharp decline from over $100 a year ago.

Analysts in their reports said debt servicing in the current and the next fiscal years would be much higher than the previous two years since the repayment on Paris Consortium debts, which were rescheduled, would being this year.

Moreover, falling foreign direct investment and remittances in the current fiscal year have created worries for the government since higher debt servicing would require higher amount.

The government has recently indicated that another bond would be issued to borrow dollars that would help to meet the possibly increased debt servicing.

Published in Dawn, August 26th, 2016