Pakistan formally applies for G-20 debt relief

Cash-strapped Pakistan has requested the members of G-20 nations for debt relief with a commitment of not contracting new non-concessional loans except those allowed under the IMF and World Bank guidelines, according to a media report.

The formal requests were sent to individual countries on Friday under the G-20 COVID-19 Debt Service Suspension Initiative, a senior official of the economic affairs ministry told The Express Tribune on Monday.

On April 15, the Group of 20 major economies announced a freeze on debt repayments from 76 countries, including Pakistan, during May to December 2020 period as they struggle to deal with the coronavirus pandemic, subject to the condition that each country would make a formal request.

 

However, one of the eligibility criteria was that the beneficiary country would not contract new non-concessional debt during the suspension period, other than the agreements under this initiative or in compliance with limits agreed under the IMF Debt Limit Policy (DLP) or WBG policy on non-concessional borrowing.

The Pakistan government has not mentioned the debt relief in the request letters, although it has assessed the cumulative relief quantum at USD 1.8 billion for May-December 2020 period.

Pakistan has also intimated to the IMF, the World Bank and the Paris Club about its decision to formally seek debt relief.

Last month, the IMF's Resident Representative to Pakistan Teresa Daban had said that Pakistan did not officially make any request to G-20 countries for debt relief.

Pakistan owes USD 20.7 billion to 11 members of the Group of 20 major economies. Out of this sum, an amount of USD 1.8 billion would mature by December 2020, including the interest payments, according to the Economic Affairs Ministry.

In these eight months, Pakistan will have to make USD 1.8 billion repayments to its 11 members. This includes USD 1.47 billion principal loans repayments and USD 323 million interest on the loans, the daily said.

Also, USD 613 million Saudi debt and USD 309 million Chinese debt will mature, according to the economic affairs ministry.

In this period, Pakistan is also required to return USD 23 million to Canada, USD 183 million to France, USD 99 million to Germany, USD 6 million to Italy, USD 373 million to Japan, USD 47 million to South Korean, USD 14 million to Russia, USD 1 million to UK and USD 128 million to the US.

Under an IMF condition, the USD 7.5 billion loans that the Imran Khan government had secured from China, Saudi Arabia, United Arab Emirates and Qatar cannot be returned during the IMF programme period, the report said.

These loans were secured only for one year to avoid default on international debt obligations but the IMF had put a condition that this money would be rolled over every year until the programme ends in 2022.

If the G-20 member countries accept the request, Pakistan will have four years period to return the amount, including one year of grace period.

Pakistan assured the G-20 members that it would not contract new non-concessional debt during the suspension period other than the agreements under the initiative or in compliance with the limits agreed under the IMF Debt Limit Policy or World Bank Group Policy on non-concessional lending.

An IMF report had estimated Pakistan's post-COVID-19 external financing requirements at USD 25.8 billion with a financing gap of USD 2 billion.

For the next fiscal year, the IMF projected Pakistan's gross financing requirements at USD 29.3 billion and a financing gap of USD 1.5 billion.

The IMF had approved USD 1.4 billion emergency loans, which largely bridged the projected financing gap but the amount fell short of the full needs.

The G-20 countries have announced the debt relief to help the poorest countries to use the created fiscal space to increase social, health or economic spending in response to the coronavirus crisis. A monitoring system was expected to be put in place by the international financial institutions.

The debt relief will last till end of 2020 but the G-20 countries might consider a possible extension, taking into the account a report on the liquidity needs of eligible countries by the World Bank and the IMF.