KARACHI: External debt servicing increased by 70 per cent in the first two quarters of 2022-23 on a year-on-year basis, worsening the shortage of dollars.

The latest data by the State Bank of Pakistan (SBP) shows the country paid $10.21 billion in external debt servicing during the first half of fiscal year compared to $6bn paid during the same period of 2021-22.

The data also shows that the country had to pay $6.77bn, an unusually high amount, in external debt servicing in October-December.

The amount of debt servicing in the second quarter of 2022-23 was almost twice the sum ($3.45bn) that the country paid in the preceding quarter of the same fiscal year.

Such a high level of debt servicing in the first half of 2022-23 drastically reduced the foreign exchange reserves of the SBP, which is responsible for such payments. Foreign exchange reserves of the SBP are hovering around $3.2bn.

The inflows from the International Monetary Fund (IMF) and other global institutions could not be unlocked despite a long spell of talks with the Washington-based lender in Pakistan.

The team negotiating with the IMF that was led by the finance minister did not issue an encouraging statement after the 10-day talks. Analysts believe Pakistan will have to wait further for the IMF loan tranche of $1.1bn as it must meet a number of preconditions before the release of dollars.

Analysts believe that the government as well as the SBP issued a number of misleading statements on the issue of foreign exchange inflows. They repeatedly claimed that arrangements had been made to pay back most of the debt for the current fiscal. The SBP’s calculations showed that the government needed just $3bn as the rest of the payments had been arranged.

In fact, the country’s foreign exchange crisis had intensified to an extent that default was imminent without support from the IMF and friendly countries. The SBP finally uncapped the exchange rate sometime back and the dollar rate appreciated from Rs228 to Rs276.

However, after reaching the peak of Rs276.58 on Feb 3, the rupee started gaining strength against the greenback. The SBP reported on Friday the dollar’s closing price was Rs262.82 after the rupee gained 1.56 in the banking market.

Published in Dawn, February 18th, 2023