47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...

Public DebtEDL to remain below 2 times of FEE.Improvement was observed in the EDL-to-FEEratio, which was 1.3 in fiscal year 2011 comparedto 1.5 in fiscal year 2010 at the back of strongworkers’ remittances and a positive turn-around inexport earnings. The improvement of this ratiosuggests that Pakistan’s stock of external debt andliabilities is growing at a slower rate than itsforeign exchange earnings. During July-March2012, the ratio stood at 1.7against 1.3 during thesame period last year.Table-9.8 External Debt Sustainability(in percent)External Debt Indicators 2007 2008 2009 2010 2011 2012*Non Interest Current Account/GDP -3.8 -7.1 -4.5 -1.4 0.8 -1.2EDL/FEE (times) 1.2 1.2 1.5 1.5 1.3 1.7EDL/FER 2.5 4.0 4.2 3.3 3.3 3.6EDL/GDP 28.3 28.2 32.3 31.5 28.5 26.5EDL Servicing/FEE 12.6 11.7 18.0 16.5 11.4 10.0STD/EDL 0.1 2.4 2.8 1.4 1.0 0.9Source: EAD, SBP & Debt Policy Coordination Office* July - March 2012FEE: Foreign Exchange Earnings; STD: Short-term Debt; EDL: External Debt and Liabilities; FER: ForeignExchange ReservesA decrease in EDL in relations to ForeignExchange Reserves reflects the consolidation offoreign exchange reserves and a generalimprovement of the country’s repayment capacityor vice versa. On the onset of SBA in 2008, theratio declined to 3.3 in 2009-10 as EDL growthslowed and foreign exchange reserves shored up.The ratio did not improve in fiscal year 2011mainly because of stagnation in reserves and lowergrowth in EDL stock. By end-March 2012, theratio deteriorated slightly to 3.6 compared to 3.3 byend June 2012 mainly because of drawdown onreserves owing to lower Foreign DirectInvestments and other non-debt creating flows.A major improvement has been witnessed in EDLto-GDPratio as it improves from 31.5 percent infiscal year 2010 to 28.5 percent in fiscal year 2011.By end-March 2012, EDL as a percent of GDPstood at 26.5 percent, thereby showing a decreaseof 2.0 percentage points in first nine month ofcurrent fiscal year. This improvement is mainlydue to faster growth in nominal GDP in relation toslower growth in external debt owing to lowerfinancing from external sources.External Debt Servicing as a percentage of ForeignExchange Earnings has been declining since fiscalyear 2010 and stood at 11.4 percent during fiscalyear 2011 owing to strong workers’ remittancesand a positive turn-around in export earnings. Agenerally acceptable threshold requires a country’sEDL servicing to remain below 20 percent of FEE.The current levels of servicing are bound toincrease as IMF-SBA repayments initiate in fiscalyear 2012, that require serious efforts to enhancethe export earnings.Pakistan’s level of Short Term Debt (STD) as apercentage of EDL has historically been lower thanmost other developing countries. It was just 0.1percent in 2006-07. Fiscal year 2009-10 has seenan improvement in STD as a percentage of EDL to1.4 percent which decreased to 1 percent in fiscalyear 2010-11. During July-March 2012, the ratiostood at 0.9 percent.9.5 Pakistan’s Link with International CapitalMarketThe first ten months of the current financial yearwitnessed a period of substantial volatility in theglobal markets, largely as a consequence of fearsrelating to the Eurozone’s peripheral economies.The Emerging Market Bond Index (“EMBI”), abenchmark index for measuring the total returnperformance of international government bondsissued by emerging market countries, has depictedan increase over June 2011 levels, implying anincrease in costs for tapping international debt135