Pakistan seeks rescheduling of $27b debt, won’t pursue ‘haircuts’

Pakistan's new Finance Minister Ishaq Dar has said 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 with the British news agency, Ishaq Dar ruled out the possibility of a default on Pakistan's debt, an extension of the maturity date on bonds due in December or renegotiation of Pakistan's current International Monetary Fund (IMF) programme.

Ishaq Dar 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, Ishaq Dar said "rescheduling is fine, but we are not seeking a haircut. That's not fair."

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 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 a million of tonnes of wheat in the next year. "In this scenario, we have the possibility to approaching and accessing this facility," he said.

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 percent 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.

In another interview with an American news agency, Ishaq Dar estimated that it could take “close to three years’’ for the south Asian country to recover from devastating floods that killed more than 1,700 people and displaced another 7.9 million.

Ishaq Dar told the news agency Friday that losses from the floods were estimated to surpass $32 billion and that the cost of rebuilding damaged infrastructure will exceed $16 billion.

Monsoon rains, likely made worse by climate change, hammered Pakistan for months starting in mid-June, damaging or washing away 2 million homes.

Rebuilding, Dar said, “can’t be done overnight” and will take “maybe close to three years’’ though he acknowledged that he was “not an engineer.” The World Bank last month pledged $2 billion in flood aid.

Dar is returning to the finance ministry at a difficult time for Pakistan. Moody’s Investors Service, citing Pakistan’s decreased foreign currency reserves, this month downgraded the country’s government debt. With inflation running at more than 20% year-over-year, Pakistan’s currency, the rupee, has fallen 19% against the U.S. dollar this year.

But Dar, who earned a reputation for supporting a strong rupee during his earlier tenure as finance minister, noted that the currency rallied upon his return to the job; it’s up nearly 10% against the dollar since late September.

Dar was in Washington this week for the fall meetings of the International Monetary Fund and World Bank.

Dar’s interview with AFP

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.

- Billions needed after floods-
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.

"With that challenge, obviously, we have to go to the drawing board" to allocate funding, he said.

He said that minor adjustments may be needed but "everything is in order" for the next review of the IMF which could release further funding.

Dar said he expected Macron's donor conference sometime in November and that he hoped it would address needs beyond the three to four years typically eyed for immediate disaster recovery.

The World Bank earlier this month once again downgraded the growth forecast for Pakistan, expecting its economy to expand by only two percent in the year through June due to the floods as well as inflation and troubled finances.

Dar, while not criticizing the World Bank's methodology, said he was a "little more optimistic" and envisioned growth of three percent.

"I think things are settling down already," he said, while not ruling out impacts from global troubles.

Jihad Azour, director of the IMF's Middle East and Central Asia department, said that a mission would visit Pakistan next month to start the next review.

He reiterated concern about Pakistan's blanket fuel subsidies, calling the policy "very regressive."

"We are encouraging Pakistan as well as also other countries to move from an untargeted subsidy that is a waste of resources and to dedicate those resources to those who need it," Azour told reporters.