Pak Gets To Grips With $28bn Debt

We have never defaulted on any of our external commitments. Nor will we, she said during a visit to London this month.

It was a message designed to reassure, but the fact that such a statement was made reflected a degree of unease in the markets. Pakistans debt is becoming more short-term and more expensive, says Fatma Shah, economist with HSBC James Capel.

The countrys debt repayments amounted to $3 billion last year, according to V. A. Jafarey, Bhuttos economic adviser.

This is a large sum for a country with exports of less than $8 billion. Out of Pakistans total foreign debt of $28 billion, some $3.5 billion is short-term.

The figure does not include some $8 billion of dollar deposits by overseas investors in Pakistani banks, about half of which effectively counts as short-term debt and on which the government also relies for foreign exchange. The government has also been forced to focus on short-term borrowing as overall terms in the market have hardened.

The decision by the International Monetary Fund in June to withhold disbursements on its $600 million loan to Pakistan because of its concerns over fiscal policy made foreign lenders reluctant to roll over commercial debt.

With a heavy bunching of maturities in the September quarter - amounting, says Jafarey, to more than $1 billion. Pakistan was obliged to draw heavily on its foreign exchange reserves.

As a result, the reserves have nearly halved since the June budget, to $830 million, equivalent to just five weeks of imports.

With a further lump of debt repayments falling due in the current quarter, Pakistan faces a serious squeeze.

Admittedly, some banks are still willing to lend: a $100 million, one-year oil import facility syndicated recently by ANZ, the Australian bank, was oversubscribed - but that is a rarity.

Most lenders were simply repaid as their loans fell due. One US bank said it received back $250 million in September without even being asked to refinance. Pakistan is also trying to raise money by speeding up its privatisation programme. Naveed Qamar, privatisation minister, this week announced plans to float 10 per cent of the Kot Addu power station for around $100 million at end-December, and sell a further 10 per cent to National Power of the UK.