March 28, 2023
Economy Pakistan

US bank warns of debt repayment halt in crisis-hit Pakistan

A US bank has warned that Pakistan may have to stop its debt repayments if it is unable to secure funding from the International Monetary Fund (IMF). As Pakistan approaches a deal with the IMF to unlock a $1.1 billion loan from its $6.5 billion bailout package, the Bank of America has suggested that China may be able to assist in rescuing the crisis-hit country due to its close ties with Pakistan. A team of economists, including Kathleen Oh, has indicated that if the payout from the IMF does not come through soon, a state of moratorium appears to be unavoidable.

Pakistan, currently experiencing its worst economic crisis in decades, has taken several measures, including increased taxes, higher energy prices, and raising interest rates to the highest in 25 years to secure funding from the stalled IMF loan program. While the country’s finance secretary, Hamed Yaqoob Sheikh, has indicated that an agreement with the IMF is likely in the next few days, Pakistan has missed such deadlines in the past.

The central bank governor, Jameel Ahmad, has revealed that Pakistan must repay approximately $3 billion of debt by June, with $4 billion expected to be rolled over. Furthermore, a recent loan rollover from the Industrial and Commercial Bank of China has helped ease the pressure on Pakistan, whose reserves cover only a few weeks of imports. If funding does not materialize, the Pakistani rupee, which has already lost nearly 20% of its value this year, could depreciate further.

Pakistan’s economic crisis has put the country in a precarious financial situation. With the IMF bailout package stalled and mounting debt repayments, the country is in urgent need of funding to prevent a potential default on its debt. The suggestion that China, with its close ties to Pakistan, could provide a backstop to its long-term ally has offered a glimmer of hope. However, until a solution is found, the risk of further currency depreciation and economic instability remains. The coming days will be critical in determining whether Pakistan can secure the necessary funding to address its economic woes and chart a path to recovery.

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