Miftah warns against debt restructuring, says cons outweigh pros

KARACHI: Former finance minister and PML-N leader Miftah Ismail has warned against any kind of debt restructuring, expressing concern that such a move would have negative effects on Pakistan’s economy, which is already suffering from one of its worst crises in history.

“The cons outweigh the pros,” Ismail was quoted as saying in Business Recorder interview. “It has taken a while for countries – Sri Lanka, for example – that opted to take this route to complete it. During the first year, Sri Lanka’s GDP shrunk by 10%. If we do this, and it takes 2-3 years, our GDP will shrink.”

Ismail, a two-time finance minister, claimed that Pakistan’s interest rates on dollar-denominated debt are low and that most of the loans cannot be adjusted because of the nature of their creditors.

“The only (component) that can be restructured is the small amount of commercial debt. The commercial debt market is then closed to you. What kind of advantage or haircut are you willing to accept?”, he said.

Ismail’s remarks come as discussions of debt restructuring pick up steam and numerous analysts advise effective handling of impending payments.

Pakistan needs to repay about $3 billion of debt by June, while $4 billion is expected to be rolled over, central bank governor Jameel Ahmad said last week, according to Bloomberg.

With loans of $500 million from the Industrial and Commercial Bank of China (ICBC) and $700 million from the China Development Bank, its foreign exchange reserves currently stand at $4.3 billion. Pakistan anticipates receiving an additional $800 million from ICBC after the company renewed the $1.3 billion facility that it had previously paid back.

According to information available from the Pakistan Directorate of Statistics, the import cover is still around one month, with February’s bill coming in at $4 billion.

Pakistan’s worries are also compounded by an incessant delay in reviving its bailout program with the International Monetary Fund (IMF), a facility that has been stalled since November last year. It had not been revived until the filing of this report.

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