National currency has lost its value by Rs.8.45 in the past few days against the US dollar in the interbank market. The rate of exchange dropped to Rs.167.45 for a dollar. Fast devaluation of rupee has increased the burden of foreign debt. The option of making a request for debt moratorium by the multilateral donor agencies is under consideration. External debt liability of some long terms loans is maturing in the next few months, which does not include the short term loans acquired from three friendly countries and European capital market through Euro bonds and other credit instruments. The outstanding foreign debt liability reached to $73.8 billion in December, 2019. Bulk of this huge foreign debt had been acquired during the last PML-N government mainly for paying the swelling imports of luxury items. The share of two multinational donors, the World Bank and Asian Development Bank stands at $28 billion.
Out of $2.3 billion public debt related payments, $530 million have to be returned to the Asian Development Bank and $1.3 billion to the World Bank within the next three months. In all $5.7 billion external liabilities have to be cleared till the end of current fiscal year including SAFE Chinese deposits. Moreover, payment of $7.5 billion short term loans acquired from Saudi Arabia and UAE will also be due shortly. It is very difficult to return these loans.
Foreign currency reserves held by the State Bank of Pakistan are once again on the downward trajectory. These reserves are depleting because of withdrawal of $1.9 billion hot money. Foreign exchange reserves held by the central bank has shown a decrease of $690 million and has dropped to 11.99 billion. Foreign investors have now started panic unloading of their holdings in treasury bills prematurely for two reasons, fear caused by coronavirus and lowering of interest by 225 basis points by the central bank. In the aftermath of this pandemic home remittances are falling and exports are declining due to almost meltdown situation of global economy. In addition to declining exports and home remittances, foreign direct investment in physical assets is also going to receive hit. Fall in export value of $500 million to $1 billion is expected during the last quarter of current financial year. Exports can fetch maximum value of $20 billion against the set target of $24 billion.
Prime Minister Imran Khan has assessed the disastrous impact of coronavirus on the economies of developing countries. In an interview with a foreign news agency he has made an SOS call to international community for waiving off foreign debt to developing countries as in the prevailing melt down like situation of global economy it would be impossible for them to pay back the loans of global lending agencies including the World Bank, International Monetary Fund (IMF) and Asian Development Bank. The Prime Minister has urged the leadership of developed countries to make up their mind for waiving of the debt given to developing countries through multilateral donor agencies.
The economies of advanced countries of Western Europe and South East Asia can absorb the shock of global economy melt down because of their productive capacities and potential of fast recovery from slump. It would be extremely difficult for debt ridden developing economies to get out of deep recession and move on the recovery path. The Panama leaks have now brought this bitter fact to black and white that bulk of the external loans that corrupt rulers of developing countries acquire are stashed out to their accounts in Swiss Banks and other tax-free heavens. It is worth mentioning that in normal conditions finance wizard of PML-N Ishaq Dar pushed Pakistan’s economy to the brink of default in 1999 during second tenure of Nawaz Sharif Government. The succeeding military led government of General Musharraf had succeeded in partial waiver of foreign debt and rescheduling bulk of it. There seems greater rationale for pressing the option of foreign debt waiver in the prevailing global economic situation.
