Despite positive macroeconomic indicators, no one living in Pakistan can deny that the country has yet to overcome a years-long crisis.
This can partly be attributed to prevailing political tensions, which are a persistent destabilizing force, and also terrorism, which discourages investment. The country’s massive external debt obligations, meanwhile, leave little funds in the kitty for any development, forcing the federal government to perpetually operate by taking on more loans. Can Pakistan hope to recover from these crises? Experts maintain any progress will rely on four things: the composition of Pakistan’s overall external debt; repayment pressure in both short- and medium-terms; potential inflows to offset the debt outflows; and the country’s external debt management strategy.
Fortunately, despite the dark clouds hovering overhead, there is some light. Pakistan has secured a fresh $7 billion bailout from the International Monetary Fund, pegged to significant financing assurances from China, Saudi Arabia and the United Arab Emirates. The loan facility requires the country to undertake massive structural reforms, with many hoping the country’s rulers will actually commit to progress rather than hope to paper over deficiencies through half-hearted measures. With Pakistan having previously gone to the IMF 22 times since 1958, one can be forgiven for questioning if this program would actually prove the last, as hoped by Prime Minister Shehbaz Sharif.
One indicator that the government is sincere about reform this time around is the country achieving its first primary budget surplus in 20 years in the last fiscal year. This is essential, as the country must still reckon with its hefty external debt, requiring the repayment of $77.5 billion from April 2023 to June 2026. While much of this would likely be rolled over, this is not great news for a country with just $14 billion in foreign exchange reserves. The government maintains it would refinance or rollover much of the debt, while repaying installments sufficiently to bridge the gap. However, even with these claims, there is little to indicate that the current generation of the country would ever see it free of debt. If the country actually undertakes required reforms, however, our descendants could experience a much more vibrant Pakistan.