Will the new government in Pakistan be able to avert a loan default?


New Delhi, April 11: Will debt ridden Pakistan face similar economic consequences as Sri Lanka? Repayment of foreign loans–that will be the challenge for the new government in Pakistan amid dwindling foreign exchange reserves, weakening currency and burgeoning inflation. All eyes are now on the International Monetary Fund, which revived negotiations with Islamabad for the $6 billion loan programme. The multilateral lender had already provided $1 billion under the programme. But observers said that it is now almost certain that the IMF assistance programme will be halted.

The opposition parties had attacked the Imran Khan government for accepting the IMF prescription of bringing in structural reforms and raising taxes–a prerequisite for the financial assistance programme.

According to reports, Pakistan will have to pay back foreign debt of $2.5 billion on account of principal and mark-up obligations in the next two months.

Pakistan’s external debt surged to $130 billion by the end of December 2021. In the July to September quarter it was $127 billion. In March the annual inflation rose to 12.7 per cent, up from 12.2 per cent in February. But what is worrisome is that the cost of food increased 15.30 per cent in March. In January, it was 12.82 per cent while in February, it was 14.73 per cent.

‘Pakistan is solely dependent on the IMF assistance but now with this situation, it is doubtful if the rest of the grant is extended..in case it does not receive the assistance, it could be in serious trouble,’ an analyst told India Narrative.

The problem multiplies as other multilateral agencies such as the World Bank and Asian Development Bank are also likely to turn blind to the needs of the country now.

‘The Pakistan Tehreek-e-Insaf government is leaving behind a mess that is bigger in size and murkier than the one created by the government of the Pakistan Muslim League-Nawaz (PML-N) in 2018. It took about one year to clear the landmines that the PML-N had left behind but the chaos created by the PTI may even take longer before order is restored,’ the Express Tribune said.

Pakistan’s foreign exchange reserves are at $11.3 billion, This is after the United Arab Emirates (UAE) agreed to roll over $2 billion debt for one year.

The Moody’s Investor Service termed the uncertainty as credit negative.

‘Pakistan’s political upheaval is adding to a surge in the nation’s default risk and triggering off further losses in the nation’s bonds and currency,’ Bloomberg in a report said.

(The content is being carried under an arrangement with indianarrative.com)




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