Pakistan's Debt? A Breakdown of Who Owes What Money

Pakistan's economy is in rough shape, and it's hurting the country's stability. Prices are going up fast (inflation!), causing people to struggle to afford things.? On top of that, there's political fighting between the leaders, and even violence is on the rise (terrorism).

Things are so bad, Pakistan might not be able to pay back its giant loans (debt) from other countries.? This is because a program with a big bank (IMF) to help Pakistan get back on track isn't working out. The bank doesn't think Pakistan is doing enough to fix its problems or get the money it needs.

Pakistan's almost out of cash (foreign exchange reserves) too, which isn't enough to buy things the country needs from other places (imports).?This whole situation is making it hard for Pakistan to be stable and move forward.

Pakistan's Debt Repayment Dilemma

Pakistan has a significant external debt of $126.3 billion as of December 2022. But this isn't a single bill to one creditor. Let's break it down

• Government's Share: $97.5 billion, nearly 77% of the total debt, is owed directly by the Pakistani government.
• Public Enterprises' Debt: An additional $7.9 billion is owed by government-controlled businesses (public sector enterprises) to multilateral lenders.

Now, who are these lenders? Pakistan's creditors come from four main groups:

1. Multilateral Debt: Loans from international institutions like the World Bank or Asian Development Bank.
2. Paris Club Debt: Debts owed to a group of creditor nations, often on concessional terms.
3. Private and Commercial Loans: Loans from private banks and other commercial lenders, typically with higher interest rates.
4. Chinese Debt: Loans from Chinese entities, including banks and government institutions.

How much these debts are?

A large part of Pakistan's debt, around $45 billion, is owed to international organizations. These include the World Bank ($18 billion), the Asian Development Bank ($15 billion), and the IMF ($7.6 billion). Pakistan also owes smaller amounts to the Islamic Development Bank and the Asian Infrastructure Investment Bank.

Even though this is a big part of Pakistan's overall debt, it doesn't pose major short-term problems. Most of these loans have favourable terms, with repayment periods ranging from 18 to 30 years. The repayments are usually made in many small transactions. In the year 2022-23, Pakistan repaid a total of $4.5 billion to these international organizations, which was about one-fifth of its total debt repayment for that year.

Paris Club Debt

Pakistan owes $8.5 billion to the Paris Club, a group of 22 major-creditor countries. This debt is scheduled to be repaid over 40 years with less than 1% interest rate, and is mostly owed to Japan, Germany, France and the United States.

This debt is like a super long-term loan with a time frame of over a 40 years! Plus, the interest rate is less than 1%.

Private Debt and Commercial Loans

Pakistan's debt picture isn't all about big banks and countries. They also owe money to private lenders, kind of like borrowing from friends or family, but on a much bigger scale.

Here's the breakdown:

• Private Bonds: These are like IOUs sold to investors around the world. Pakistan has $7.8 billion worth of these, some recent with repayment periods of 5 to 30 years. The interest rates vary, from a low of 6% for short-term loans to a higher 8.87% for longer ones.
• Commercial Loans: These are short-term loans, usually lasting 1 to 3 years, from banks and other financial institutions. They come with stricter terms and higher interest rates, sometimes linked to special interest rates like LIBOR. Pakistan recently borrowed $2.2 billion from a Chinese bank at a rate based on SHIBOR, with a three-year payback period.

China's the Biggest Lender

China is a major source of debt for Pakistan, with a total owed of around $27 billion. Here's a breakdown of what that means:

• Government Loans: This is money directly loaned by the Chinese government to Pakistan, totalling about $10 billion. Think of it like a loan between friends, but on a much bigger scale!
• Business Loans: Another $6.2 billion is owed by Pakistani government-run businesses (public sector enterprises) to the Chinese government.
• Bank Loans: Regular commercial loans from Chinese banks add up to roughly $7 billion.

The loans directly from the Chinese government (bilateral debt) have friendly terms, with a long repayment period of 20 years. Plus, there's a special agreement (currency swap facility) between Pakistan and China to help manage their currencies.