KARACHI: Former central bank chief Dr Reza Baqir said on Tuesday debt restructuring for Pakistan will be “very difficult as a process” given that most of its foreign loans are “very hard to restructure”.

“All the warning signs are there that the process will be difficult because of the type of debt that dominates on the balance sheet of Pakistan,” said Dr Baqir who stepped down as governor of the State Bank of Pakistan (SBP) last year and is now working as managing director at Alvarez & Marsal, a global consulting firm.

His comments, which he made during a podcast, are in the wake of growing chatter about the need for debt restructuring. The country faces dollar-denominated loan repayments of $73 billion in the next three years amid depleting foreign exchange reserves.

Dr Baqir said most of the country’s debt constitutes “official debt,” which means Islamabad owes it to either multilateral official partners like the International Mone­tary Fund and the World Bank or bilateral creditors like governments and their institutions.

Pakistan doubled its external borrowings in the last seven years. They increased from $65bn in 2014-15 (24 per cent of GDP) to $130bn (40pc of GDP) in 2021-22.

“Even if Pakistan goes for restructuring, it’ll be very hard to get a debt reduction,” he said while referring to a renegotiation that shrinks the outstanding debt stocks as opposed to a rescheduling that only extends the loan maturity dates.

Of the total external public debt of $99bn, multilateral debt — owed to international financial institutions — accounted for 42pc. The share of bilateral debt — mainly country-to-country loans — is approximately 38pc, according to data compiled by Topline Securities.

The largest share within the latter category is of China ($23bn). By including the loans of $6.7bn obtained from Chinese banks, the biggest Asian economy emerges as Pakistan’s largest bilateral creditor.

Neither multilateral nor bilateral creditors are “gonna jump at any opportunity to give a haircut” on Pakistan’s debt, he said.

“For multilaterals, that’s almost impossible. For bilaterals, even in its heyday, (the) Paris Club was loath to give debt reductions, and continued to give rescheduling even if the insolvency of the country was staring them in the face,” he said.

He profusely praised China for helping Pakistan when he served as SBP governor from 2019 to 2022. “I’m not a big fan of debates and discourse that take the form of China bashing. To me, China is acting like any large bilateral creditor would,” he said in connection with a growing sense in Western capitals that the Asian superpower isn’t doing much to address the debt problem faced by developing economies like Pakistan.

“There’s a perception on the part of China that others are being generous with its money,” he added.

Dr Baqir said a meaningful debt reduction was “very difficult” if any domestic debt was made part of the restructuring as the decision could then aggravate the problem in the financial sector.

Published in Dawn, April 5rd, 2023

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