Debt service will corrode 40% of the FY21 budget

KARACHI: Debt service is expected to weigh on two-fifths of the country’s total budget in the current fiscal year 2020/21, as it is the first category of spending, according to the Federation of Chambers of Commerce and Pakistan Industry Institute (FPCCI).

The FPCCI on Friday called for long-term debt relief for G20 member countries or their permanent termination to help the country cope with the post-Corona economic crisis.

The central bank’s foreign exchange reserves fell below $ 12 billion due to the continued payment of external debt and its reserves stood at $ 11.8 billion on October 9 from $ 12.8 billion. dollars on September 11, down more than $ 1 billion in a single month.

“Although the global economy has started a gradual recovery with the reopening of businesses, the recovery has not been smooth, as many poor countries still spend more on debt payments than on vital public services,” he said. the FPCCI said in a statement. .

“The world community should be thinking of some kind of debt cancellation for countries like Pakistan, as most of its income is spent on debt servicing, which makes it very vulnerable.”

Last year Pakistan paid $ 11.6 billion to lenders, which is almost as much as its central bank has in its reserves right now.

“It is very fortunate that Pakistan and other countries have collectively called for a moratorium on interest payments, as the bulk of their debt consists of loans, which are borrowed to repay past loans, trapping them in a vicious cycle of debt, “said the FPCCI.

The country’s reserves have been declining since September due to scheduled payments of the external debt. Although in recent weeks the central bank has also received inflows from multilateral and bilateral agencies, these inflows have been lower than

cash outflows, due to which foreign exchange reserves fell sharply.

The global community should be thinking of total debt cancellation for countries like Pakistan, which will help them cope with post-coronavirus suffering, the FPCCI said.

“Pakistan lacks fiscal space and an adequate health system,” he said. “Therefore, the most appropriate response the G20 countries can give, at this time, is to abandon the loan instead of temporary relief.”

The FPCCI said there is no benefit to the announcement by G20 countries of interim debt relief on principal and interest payments, as the period of suspension of debt relief Debt will only last a few months and all debt service maturing during that time will be consolidated into a new loan. on which repayments will start again after a short period, to be paid over three years.

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