According to a report released by Bloomberg, about 42 percent of Pakistan’s outstanding debt is due to mature in 2016. The volume of the debt in dollar terms is roughly $50 billion and this amount is equivalent to the size of Slovenia’s economy. Experts fear the country could default on its debt as the credit default swaps have surged 56 basis points last week. The new government, after assuming the power in 2013, approached the International Monetary Fund for an extended facility programme and won a loan amounting to $6.6 billion to help avert an external payments crisis. The fund projected the economy of the country to grow at 4.5 percent, which is an eight-year high after the Pakistan Army launched a crackdown on militants in tribal areas, Karachi, Peshawar and elsewhere bringing peace and stability to some extent across the country. The report says that the country’s high level of public debt, with a large portion financed through short-term instruments, does make the sovereign’s ability to meet the financing needs more sensitive to market conditions.
The report says that since Prime Minister Nawaz Sharif’s government took the loan, the country’s debt due by end-2016 has jumped about 79 percent and is facing resistance in meeting the IMF demands to privatize state-owned organizations, including the national carrier Pakistan International Airlines. This year’s debt amounting to $30 billion is due between July and September, and repayments will get tougher if borrowing cost further rises. In case the debt servicing cost rises, the government will have little options to maneuver. An amount of about $124 billion or 77 percent of the country’s budget for the year through June 30 has been earmarked for interest and principal repayment on loans.
However, experts also believe that the situation will not create panic in financial circles of the country as the external liabilities are relatively modest, foreign-currency reserves have increased and the fund is willing to help meet maturing the loans. The China Pakistan Economic Corridor has created conducive environment for the foreign investors while low budget deficit will help increase investor confidence in the country’s economic policies. According to the report, Pakistan has the 10th highest political risk score among more than 120 countries,even worse than Egypt and Iran. As a matter of fact, the government will have to overhaul the current financial system to put the economy on the right track. The countries liabilities are increasing day by day without the support of a strong industrial base. It is hoped that commonsense will prevail and the government will find a way out to keep minimum reliance on foreign loans.
