Debt Crisis Deepens in Pakistan

In a concerning development, Pakistan’s overall debt burden has surged to an alarming PKR 63.399 trillion by the end of November in the financial year 2023-24, according to an official report cited by ARY News. This represents an increase of over PKR 12.430 trillion during the tenure of the PDM and the caretaker government.

The breakdown of the debt reveals a substantial domestic loan component, accounting for PKR 40.956 trillion, and international loans totaling PKR 22.434 trillion. In November 2022, the overall debt stood at PKR 50.959 trillion, emphasizing the rapid escalation over the past year.

Pakistan’s commitment to the International Monetary Fund (IMF) for a fresh loan program has come to light, with the Memorandum of Economic and Financial Table (MEFPT) indicating assurances made by the country. The plan includes an undertaking to increase foreign reserves to USD 13.6 billion in FY2024-25 to avail the new loan program. Pakistan aims to seek a rollover of USD 6.34 billion in loans for the next financial year, with an additional USD 1.31 billion in foreign investments.

A recent World Bank report adds to the growing concerns about Pakistan’s economic trajectory, stating that the country’s economic development is confined to the elite. The report, echoing sentiments expressed by World Bank Country Director for Pakistan Najy Benhassine, describes Pakistan’s economic model as “ineffective.” The rise in poverty, previously reduced, is resurfacing, prompting calls for a reassessment of policy for sustainable economic development.

In a bid to address the pressing financial challenges, Pakistan has formally requested fresh loans amounting to USD 600 million from two Chinese banks. This strategic move is seen as a critical step in ongoing negotiations with the IMF for the release of the second tranche of a USD 3 billion bailout package. The Industrial and Commercial Bank of China (ICBC) and the Bank of China have been approached for a combined loan, with each bank expected to provide USD 300 million. Negotiations are progressing, with hopes of securing the loans by the next month.

It is essential to note that under the terms of the USD 3 billion IMF bailout deal, Pakistan has committed to adopting a market-based exchange rate regime, further highlighting the challenges and reforms the country is navigating to stabilize its economic situation.

The escalating debt crisis in Pakistan raises concerns not only domestically but also internationally, as the country grapples with the complex task of balancing economic stability and meeting its financial obligations.

[Sources: ARY News, ANI, The News International]