According to the media reports, out of a total of $120 billion foreign debt, Pakistan has to return around 42 percent of it or $50 billion this year to avoid reaching a stage of default. The foreign exchange reserves have reached $23 billion and $8.5 billion will go in debt servicing between July and September this year. To overcome the crisis, the government will have to introduce another batch of short-term instruments to leverage its current liabilities. Unfortunately, the International Monetary Fund was consulted in 2013 for a $6.6 billion loan to make payments for the previous outstanding loans and avoid a crisis-like situation. As a result, at least $124 billion or 77 percent of the budget allocations have already been allocated for the repayments of loan.
The government is still far from reaching a decision on the privatization of the state owned organizations, a condition set by the IMF. The government is also imposing addition taxes on the people to meet the conditionalities of the donor agency and meet the fiscal deficit. The privatization of the national carrier and other organizations have also been held in abeyance due to lack of transparency, opposition from employees and legal difficulties. The government has assured the fund that it will implement the macroeconomic stability programme and other guidelines. Economists believe the external liabilities are modest, the foreign exchange reserves have reached a stable point and investment from China and elsewhere will increase the level of financial confidence. But the government should not put all its hopes on the Chinese investment in an economic corridor. Until the local investors are encouraged to participate in the economic activities, the tax targets are unlikely to be achieved at the end of the year.
The government will have to improve growth rate, check inflation and lower budget deficit by boosting investors’ confidence. An unnecessary pressure on the business community entails a risk of capital flight and devaluation of the Pakistani rupees. According to the IMF, the Pakistani rupee is overvalued at the current rate and needs correction. However, it is good that the government has been thwarting attempts to devaluate the rupee and has been continuing to maintain its stability for the last couple of years. Once its devaluation is allowed, the government will be unable to arrest free fall of the value of the rupee against foreign currencies and it will open up the flood gates of inflation in the country. Now the government has enough foreign exchange in the national coffer but it is yet to be seen how it comes out of the debt liabilities without putting extra burden on common man.
