Pakistan Faces $10 Billion Debt Repayment Challenge by July 2024

Pakistan is on the clock as it faces the daunting task of repaying a massive foreign debt of $10 billion in the upcoming months of June and July 2024. This obligation is exerting immense pressure on the government, prompting officials to consider loan rollovers and arrange financing to meet the deadline.

Currently, Pakistan’s foreign exchange reserves are at a critical level of $9 billion, which is less than the impending debt obligation for the next two months. This situation leaves the government with limited options to settle the debt with the current reserves and liberalize imports to stimulate the economy.

In the previous year, Pakistan had borrowed $3 billion from friendly countries, including Saudi Arabia and the United Arab Emirates (UAE), between June and July. This was followed by the receipt of the first $1 billion tranche of the International Monetary Fund (IMF)'s loan in July 2023, which increased the foreign exchange reserves to around $8 billion from around $4 billion in June 2023.

The assistance of $4 billion received in June and July 2023 may be part of the potential rollover and repayment in June and July this year. "In June 2024 alone, we have to repay around $6.7 billion in principal debt, of which around $4 billion is expected to be rolled over,” projected Maaz Azam, Head of Research at Optimus Capital Management.

This period coincides with when Pakistan expects to secure the next IMF loan program of $6-8 billion for three to four years. The bailout is necessary to ensure uninterrupted foreign debt repayment and provide a cushion to prop up economic activities through financing imports.

According to data from the State Bank of Pakistan (SBP) and JS Global Research, the country is required to repay and roll over a total of $27.52 billion over a period of 12 months (May-April 2024-25). The data further showed that the total debt obligation of $27.52 billion for 12 months included $23.95 billion in principal loan repayment and another $3.57 billion in interest cost.

Azam mentioned that the government is engaged in talks with the IMF to secure the new loan program after the standby arrangement of $3 billion concluded in April 2024. “The next IMF program will ensure loan rollovers and repayments for the next three to four years (which covers the duration of the bailout package),” he pointed out.

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