KARACHI: Pakistan’s foreign debt servicing amounted to $8.16 billion in 2016-17, up 53 per cent from the preceding fiscal year.

The State Bank of Pakistan (SBP) reported on Thursday that the country paid $6.54bn in principal and $1.62bn in interest during the last fiscal year.

Foreign debt servicing amounted to $5.32bn in 2015-16.

In the first, second and third quarters of 2016-17, debt servicing payments were $1.55bn, $1.25bn and $2.43bn, respectively. In the last quarter, the country paid $2.92bn.

The figure can go further up in 2017-18 as the government has been accumulating dollars through commercial borrowing. It borrowed $4.4bn at commercial rates in 2016-17 in an attempt to maintain foreign exchange reserves of the SBP.

FALLING RESERVES: Despite commercial borrowing, the government could not contain the drop in reserves. The central bank lost about $4.64bn between October 2016 and Sept 15.

Another SBP report issued on Thursday noted that the SBP’s reserves fell $474 million to $14.28bn during Sept 8 and 15. It showed that commercial borrowing could not increase foreign exchange reserves, although it helped prevent their rapid depletion.

The country has been struggling to meet its increasing trade deficit, which was being bridged largely through remittances that also dropped in 2016-17.

The current account deficit also touched the record high of $12.1bn in the last fiscal year.

Some positive developments have taken place on the external front in recent months. Remittances, exports and foreign direct investment have grown since the beginning of 2017-18.

However, the trade deficit for July-August widened to over $6bn, which is reflective of a poor balance of trade going forward.

The exchange rate remained largely stable during 2016-17. Experts believe a sharp increase in debt servicing can destabilise the exchange rate in the future.

The government has not yet approached the International Monetary Fund to shore up foreign exchange reserves. It is instead planning to borrow from the international market through Islamic bonds. The amount can be in the range of $500m to $1bn.

Published in Dawn, September 22nd, 2017