Finance Minister Muhammad Aurangzeb on Sunday said Islamabad
had already asked the friendly bilateral trio of lenders to roll over its more
than US$12 billion annual debt portfolio by three to five years to secure the
IMF board’s approval for a US$7 billion economic bailout.
This is on top of Islamabad’s request to Beijing to convert
imported coal-based projects to local coal and re-profile more than US$15
billion in energy sector liabilities to create fiscal space amid difficulties
in timely repayments.
Pakistan has a peculiar financial arrangement with these
three countries in the shape of commercial loans and SAFE deposits that are
rolled over every year and form major part of the IMF program in terms of
external financing needs.
Pakistan has now requested the maturity period of these
loans — US$5 billion from China, US$4 billion from Saudi Arabia, and US$3 billion
from the UAE — to be extended to at least three years, offering greater predictability
under the IMF program.
Speaking at a news conference after returning from
China, Finance Minister said the Chinese side acknowledged Pakistan’s foreign
exchange difficulties and wanted to help in new business ventures and the
re-profiling of energy sector payments besides playing its role in supporting
Pakistan’s case at the IMF board as one of the major stakeholders.
He said the process of debt and equity rescheduling had been
started and would now go to the working groups with relevant financial
institutions and sponsors of Chinese projects for which Pakistan was hiring
local Chinese consultants.
“Between now and the IMF board meeting we have to ensure
confirmation of external financing” from friendly bilateral partners, the
minister said. However, he explained that the Chinese energy sector debt
re-profiling had nothing to do with the IMF program as other prior actions had
been completed and structural benchmarks were under implementation.
Minister said he was in contact with the Chinese, Saudi and
UAE finance ministers for extension in debt rollover for three years and they
had assured their support that would place Pakistan at a very comfortable
position in terms of external financing gap.
“I can assure you we are at a very good place on external
financing for the next three years, including year-one, year-two and
year-three,” he said.
Without going into details, he said the IMF had worked out a
financing needs assessment for three years that also included its own US$7 billion
Extended Fund Facility. After rollovers from friendly countries, the remaining
external financing gap would become very manageable, he said.
Responding to a question, the minister said Pakistan was not
seeking any incremental financing from friendly countries. “The only
incremental thing is an extension in maturity period for three years instead of
yearly rollovers,” he said.
Minister said that the issue of energy sector repayments was
initially taken up by Prime Minister Shehbaz Sharif with President Xi Jinping
of Chian during his visit to Beijing and followed it up with formal letters to
Prime Minister Li Keqiang.
As part of the process, Finance Minister along with Power
Minister held meetings with Chinese finance and energy ministers and the
governor of the Chinese central bank to understand the context of Pakistan’s
ability to pay, economic stability and relief in energy tariffs.
He said the two sides discussed conversions of Chinese power
projects to local coal and how to take their technical, logistical and
financial parameters forward.
Secondly, financial re-profiling would also need to be
discussed with banks and project sponsors one by one. “They have recognized
this and the process would now move forward on that basis,” Minister said.
He said the re-profiling of CPEC debt was also discussed the
governor of Chinese central bank and “we would need to go for project by
project given the CPEC structure”.
“Very positive discussions have taken place from my
perspective,” he said, adding the debt of Chinese independent power producers
(IPPs) was manageable as their legal payments were being made, but the issue
pertained to return on equity to project sponsors mainly because of foreign
exchange which required to be rescheduled to create fiscal space.
Minister, however, clarified that Pakistan was seeking the
re-profiling of payments and not “haircuts” — debt waiver or interest rate
cuts.
He stressed the importance of long-term structural solutions
for economic challenges. He acknowledged the difficulties faced by all segments
of society due to high interest rates, energy prices, currency devaluation and
increased tax burdens but emphasized the necessity of tough measures given the
loss of fiscal space.
“We have no more choice of doing what we have been doing in
the past for short-term relief and objectives.”
Responding to a question, the finance minister said Pakistan
has moved forward with both the United States and China, aiming to advance the
phase two of CPEC under which Chinese business were to relocate to Pakistan,
while the US was Pakistan’s largest trading partner and the European Union had
provided the GSP Plus status to help prop up Islamabad’s exports.
He said that during his visit to China, he also engaged with
his counterpart and the central bank chief to explore opportunities in the
Chinese capital market — the second largest in the world — through Panda bonds.
He said Pakistan would register for the US$1 billion equivalent of Panda bonds
but tap around the equivalent of US$150 million to US$200 million.
Minister said industrialists should also acknowledge that
Pakistan’s economy was such that it immediately ran into a foreign exchange
crisis as it tried faster economic growth, and hence, it would be prudent not
to fall again into the import restriction regime that could be more painful.
He hoped the stability in foreign exchange and macroeconomic
indicators would soon improve Pakistan’s credit rating and gradually move
towards export-led growth, FDI creating exports and return to the international
capital markets.
Past efforts for public sector rightsizing did not bear
fruit because of large portfolios, the minister said, adding that he was
pushing for “bite-size” restructuring by taking only five shortlisted
ministries — Kashmir Affairs and Gilgit-Baltistan, Safron, Industries and
Production, IT and Telecom, and Health — in the first instance while protecting
the rights of workers and asset values.