Pakistan seeks rescheduling of $27bn debt and expects gradual recovery from floods

New finance minister Ishaq Dar has ruled out the possibility of a default on country's debt

People affected by floods queuing to receive free food distributed by the Pakistan Red Crescent Society in Larkana. EPA
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Pakistan's new finance minister Ishaq Dar said on Friday 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, Mr 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 $32bn after devastating floods.

Some of this may come from reallocating funds from previously approved, slower-disbursing development loans, he said.

Mr Dar, who participated 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 $23bn 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".

Mr 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 per cent since his appointment.

Mr 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, Mr 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-million of tonnes of wheat in the next year.

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

In a separate interview, Mr 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.

Losses from the floods were estimated to surpass $32bn and that the cost of rebuilding damaged infrastructure will exceed $16bn, he said.

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

Rebuilding, Mr 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 $2bn in flood aid.

Updated: October 15, 2022, 11:02 AM
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