KARACHI: External debt servicing rose to $5 billion by the end of the third quarter of 2016-17, according to a recent report released by the State Bank of Pakistan (SBP).

It amounted to $5.3bn in 2015-16.

The SBP report indicates that external debt servicing will be 25 per cent higher than a year ago. This will put further pressure on the economy, which is already under stress because of a high trade deficit and low remittances.

The report showed debt servicing in the third quarter amounted to $2.22bn as opposed to $1.22bn in the second quarter.

Debt servicing will be more difficult to manage once the repayment on Chinese loans begins. It can be around $5bn a year for Chinese loans alone by 2021.

The country has been facing two major challenges simultaneously: rising debt servicing and a widening current account deficit that rose to $7.2bn in the first 10 months of 2016-17.

With lower inflows and higher outflows of dollars, foreign exchange reserves of the country have been declining every month since October 2016. The government plans to approach the bond market as reserves are decreasing at an alarming rate. The government took credit for bringing down the dollar rate from Rs108 to Rs97 four years back. It is still around Rs104.85 in the interbank market.

The government claims the economic growth rate for 2016-17 is going to be in the range of 5.28-6pc.

Published in Dawn, May 24th, 2017