The Pakistani economy is in a state of flux, and there is a real possibility that the country may default on its foreign debt obligations. This is a cause for great concern, as a default would have far-reaching implications not just for Pakistan, but for the global economy as a whole.
The source of the problem is Pakistan’s large and growing deficit. The country’s current account deficit – the difference between what it earns through exports and what it spends on imports – grew to a record $18 billion in the fiscal year that ended in June. This is equivalent to about 5% of Pakistan’s GDP, and is far higher than the country can sustain.
To finance this deficit, Pakistan has been borrowing heavily from abroad. As of June, the country’s foreign debt stood at $73 billion, up from $60 billion a year earlier. This is an unsustainable level of borrowing, and it is only a matter of time before Pakistan runs into trouble meeting its debt obligations.
The situation is made even worse by the fact that Pakistan’s economy is not growing sufficiently to service this debt. In the fiscal year that ended in June, Pakistan’s GDP growth was just 3.7%. This is well below the country’s population growth rate of 2.4%, meaning that the economy is actually shrinking in per capita terms.
The combination of a large deficit, heavy borrowing, and sluggish growth means that Pakistan is on the verge of a default. If the country cannot find a way to finance its deficit and reduce its debt burden, it is only a matter of time before it is unable to meet its obligations.
The economy of Pakistan is going to face a severe currency crisis in the next 12 months. This is according to various international agencies. The IMF has postponed its next program performance review twice. This has delayed the disbursement of the $1.2bn tranche. Other multilateral and bilateral creditors aren’t delivering on their commitments due to Islamabad’s ongoing tensions with the IMF on unmet program targets. Unless investors see a reversal in these trends, the market will continue to worry about Pakistan’s ability to repay its debt. Fixing our relationship with the Fund would be the first concrete step towards quashing the default rumors once and for all.
Pakistan has been facing an economic crisis for the past few years. The country has been struggling to pay its debts and meet its financial obligations. The situation has gotten so dire that there are rumors that Pakistan may default on its debt payments in the near future. Defaulting on debt payments would be a catastrophic event for Pakistan. It would likely lead to the country being blacklisted by international financial institutions, making it even harder for Pakistan to obtain funding in the future. This would further undermine the already fragile Pakistani economy and could lead to social and political instability.
Pakistan needs to take urgent action to address its economic problems. The first step should be to fix its relationship with the IMF. This would send a strong signal to the international community that Pakistan is committed to resolving its economic crisis. It would also allow Pakistan to access much-needed funding from the IMF.
Time is of the essence. Pakistan cannot afford to delay any longer. It must take action now to avert an economic disaster.