Pakistan seeks rescheduling of $27b bilateral debt, says minister

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Ishaq Dar speaks during an interview at the Pakistani Embassy in Washington on Friday. Associated Press

Pakistan’s new finance minister, Ishaq Dar, told Reuters on Friday that he will seek rescheduling of some $27 billion worth of non-Paris Club debt largely owed to China, but will not pursue haircuts as part of any restructuring.

In an interview, Dar ruled out the possibility of a default on Pakistan’s debt, an extension of the maturity date on bonds due in December or a renegotiation of Pakistan’s current International Monetary Fund programme.

The veteran finance minister said multilateral development banks and international donors have been “quite flexible” with ways to meet Pakistan’s external financing needs estimated at about $32 billion after devastating floods. Some of this may come from reallocating funds from previously approved, slower-disbursing development loans, he added.

Dar, who is participating in the IMF and World Bank annual meetings just over two weeks after taking office, said that Pakistan will seek restructuring on equal terms for all bilateral creditors.

He declined to comment when asked whether he thought it would be difficult to persuade China, creditor for about $23 billion of the debt, to participate.

But asked whether Pakistan would seek to reduce debt principal, he said “rescheduling is fine, but we are not seeking a haircut. That’s not fair.”

Dar, who served as Pakistan’s finance minister three previous times — most recently from 2013 to 2017 — is known as a staunch defender of the rupee. He said Pakistan has not engaged in physical intervention in the currency, which has been battered this year by a strong US dollar, but which has rallied some 10% since his appointment.

Dar said that he views the “true value” of the rupee at a level under 200 to the dollar. It last traded at 219.

“I am for a stable currency, I am for a realistic rate. I am for market-based, but not subject to a currency being taken hostage” and making speculators billions of dollars.

Asked whether he discussed with IMF officials the possibility of borrowing from the Fund’s new Resilience and Sustainability Trust for middle-income countries, Dar said “We have discussed all options.” The Pakistan finance minister added that the IMF’s new emergency “food shock” borrowing window may also be a good fit for the country, which has lost crops due to devastating floods and may need to import up to half million of tonnes of wheat in the next year.

“In this scenario, we have the possibility to approaching and accessing this facility,” he said.

Pakistan vows IMF reforms: Pakistan’s finance minister has promised international lenders to stay true to economic reforms despite a new estimate that his country quickly needs more than $16 billion to recover from devastating floods.

Finance Minister Ishaq Dar also said that a flood donors’ conference promised by French President Emmanuel Macron would take place next month which he hoped would help Pakistan both with immediate and longer-term needs.

The International Monetary Fund in late August released $1.1 billion to Pakistan as part of a $6 billion package sealed in 2019 as the new government of Prime Minister Shehbaz Sharif moved forward on reforms.

“It will be our endeavor, even at the cost of extra effort, that we should complete the program successfully,” Dar told AFP in an interview Friday evening in Washington.

Doing so “sends a positive signal to the international community and the markets,” he said, voicing appreciation to the “very responsive” promises of other nations for Pakistan.

Dar — who took the job for the fourth time last month after his predecessor quit — acknowledged political risks.

Former prime minister Imran Khan, the cricket star turned politician ousted in a no-confidence vote in April, has been plotting a return amid protests seeking an early election.

Khan late in his term slashed petrol prices, defying his own government’s package with the IMF, which says that subsidies should only benefit the neediest as Pakistan struggles to put its finances in order.

Dar said that some of his political allies had advocated letting Khan stay on longer to face the consequences of the economic crisis.

“It would have been selfish to have a political approach,” Dar said.

The new government took over to face unprecedented monsoon rains that submerged one-third of Pakistan — the world’s fifth most populous country.

Such disasters are forecast to worsen in the coming years due to climate change, even though Pakistan contributes less than one percent to the carbon emissions heating up the planet.

Dar said that a new study commissioned in part by the World Bank and the Asian Development Bank found that Pakistan sustained $32.4 billion in flood losses and would require $16.2 billion for reconstruction and rehabilitation.

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