By Saeed Shah/The Wall Street Journal
Islamabad, December 9: Pakistan is restricting imports and trying to get an International Monetary Fund bailout back on track, as it struggles to find dollars to pay a mountain of foreign debt.
The country disclosed this week that its foreign-exchange reserves have dwindled to the lowest level in nearly four years, with only enough to cover about six weeks of imports.
Islamabad has been meeting bilateral lenders to enlist their help. It is seeking an emergency $3 billion loan from Saudi Arabia, Pakistani officials said this week, and continuing to work with the IMF to secure the next round of financing. Any fresh Saudi injection would be on top of a $3 billion loan that Saudi Arabia rolled over just this month.
Billions of dollars of debt payments are due in the next few months from Pakistan, which is facing a delay in the release of the next tranche of its $6.6 billion bailout from the IMF, as the lender demands a better economic plan from Islamabad.
The IMF program was restarted in August after stalling over large subsidies that Pakistan introduced without the lender’s agreement. A total of $2.6 billion is due from the IMF over the next six months.
Esther Pérez Ruiz, the IMF’s representative in Pakistan, said that the discussions with Pakistan were taking longer than expected. She said that not all economic targets set by the IMF were met, and new developments took place, especially catastrophic floods in the country this summer.
“A key part of the discussions covers policies to reprioritize and better target support toward flood-related humanitarian and rehabilitation needs, while also accelerating reform efforts to preserve macroeconomic stability,” Ms. Ruiz said.
Pakistan’s finance minister didn’t respond to requests for comment. The Ministry of Finance said that it remains committed to completing the IMF program. It said government expenditure is being cut and it is considering energy conservation measures to reduce the fuel import bill.
Slowing global growth and rising interest rates risk tipping a large number of developing countries into debt crises. Currency depreciation has made matters worse for developing countries such as Pakistan whose debt is denominated in U.S. dollars.
Like many developing countries, Pakistan owes much of its borrowing debt to China. Some developing nations overwhelmed by loans, such as Sri Lanka and Zambia, are seeking debt rescheduling and forgiveness, including from Beijing, testing how much relief China is willing to provide.
In Pakistan, a continuing clash between the government of Prime Minister Shehbaz Sharif and the opposition, with elections due within nine months, is making unpopular economic decisions more difficult to make. Among the measures sought by the IMF are higher taxes, analysts said.
The flooding this summer ruined a large part of the crucial cotton and rice crops, requiring billions of dollars for reconstructing infrastructure and worsening the country’s trade situation.
Import orders of raw materials and machinery for manufacturing are being choked by the central bank’s limiting the opening of letters of credit, which are issued by local commercial banks to finance the imports of their clients. Goods are stuck at Karachi Port as payment isn’t being cleared, businesses said.
“If they are not able to import, the entire machinery stops,” said Zubair Motiwala, chief executive of the Trade Development Authority of Pakistan, a branch of the government.
Imports of the active ingredients needed in the manufacture of drugs are being restricted, according to Farooq Bukhari, chairman of the Pakistan Pharmaceutical Manufacturers Association. “There will be a shortage of essential medicines in the coming months,” Mr. Bukhari said.
Pakistan’s debt pile is even more onerous than most. The poorest countries’ debt payments at the end of 2021 were equivalent on average to 10% of their exports, according to the World Bank. In Pakistan’s case, that figure is around 70% this fiscal year, which began in July.
Pakistan needs at least $33 billion this fiscal year to make foreign debt payments of $23 billion and cover a $10 billion expected trade deficit, officials say. The country’s foreign exchange reserves last week were $6.7 billion—and those reserves are made up of loans.
The State Bank of Pakistan—the central bank—said Thursday that $6 billion of debt was paid back so far this fiscal year, and it expected much of the remainder to be rolled over. That includes several billion dollars owed to Chinese banks.
“We will make future payments on time,” said the head of the central bank, Jameel Ahmad.
The central bank has also said that it is easing import limitations imposed in recent months, with 90% of imports now allowed. Eight industries are permitted 50% to 60% of their normal imports, under measures introduced in May and further tightened in July. Those sectors include parts for car manufacturing and domestic appliances, textile machinery and cellphones. The bank denied that pharmaceuticals were being restricted and said that fuel imports continued unhindered.
Imports dropped by 34% in November compared with the same month last year, official figures show.
Pakistan’s external debt and liabilities doubled in the last seven years, to $130 billion. That has been partly driven by a loan binge from China to finance infrastructure building under Beijing’s flagship Belt and Road program.
Pakistan this month paid $1 billion due on an international bond. Unlike Sri Lanka, which defaulted earlier this year, relatively little of Pakistan’s debt is owed to bondholders, and its next international bond payment isn’t until 2024.
Mohammad Sohail, chief executive of Topline Securities, a Pakistani stockbroker, said that the country needs to seek debt deferment and forgiveness. But with an election looming next year, that process may have to wait for a new government.
Islamabad’s lenders are usually easier to negotiate with than bondholders. They include bilateral loans from China and Gulf allies, the Paris Club of wealthy nations, multilateral agencies such as the World Bank; even commercial loans are largely with Chinese banks that work closely with their government.
“The burden is so huge that paying it is impossible,” said Mr. Sohail. “It is better to restructure your debt before you default.”
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