Ex-finance minister Miftah Ismail, since being sidelined by his successor Ishaq Dar, has taken to issuing dire commentaries on the economy, becoming a source of validation for the opposition. In a recent op-ed, he opined that the national economy’s risk of default on interest payments is “a very negative situation for a country.”
A default, or even a default-like situation has a direct impact on the common citizen, as it triggers a shortage—or complete lack—of all imported commodities. For Pakistan and many other nations, these commodities include things like petrol, cooking oil and other essential items. According to Ismail, if Pakistan does default, it would take at least six months to recover. In a direct strike to the government, he adds: “The public was given the impression that the government of Imran Khan was incompetent and that its policies were ill-planned, but what about the Pakistan Democratic Movement? Have things not gone from bad to worse under the watch of the incumbent PDM government?”
It is fact that Pakistan’s debt burden has become untenable, with foreign creditors fearing a potential default. Interest payments alone will eat up half of government revenue this year, up from around 40 percent in 2022. In a report published last year, Barclays Bank estimated that Pakistan faces a funding gap of at least $6 billion in the ongoing fiscal year. It said that of the $15.5 billion in debt service obligations due this year, $9.5 billion would be rolled over, since it was from official creditors, while a bond of $1.5 billion had been earmarked in the budget. This still leaves a gap of $4.5 billion.
Dar has emphasized there are no plans to seek a rescheduling of payment obligations, but markets are unmoved by these reassurances. The State Bank of Pakistan, during a recent briefing, supported him, claiming the country “had ample financing lined up to meet its obligations through the entire fiscal year 2023.” Observers, however, think this is too optimistic given that Pakistan’s credit rating has been downgraded by multiple agencies, who regard it among the “weakest” in the world.
Finance Minister Dar’s optimistic messaging—couched in warnings of a “tough” position—is clearly falling on deaf ears. The Pakistani rupee’s persistent decline against the dollar doesn’t help. When the PDM came to power in April, the rupee stood at 186 to the dollar; it climbed to 240 under Ismail in July, before hitting its current value of 226. Does this prove Dar’s claims right about the economy, while rubbishing the doom-saying of a majority of economists? Nothing is certain given the political situation in the country, where isolationist Imran Khan continues to appeal to the nation.
Khan and his PTI clearly take heart from an economy facing collapse; but his oft-repeated isolationist rhetoric—while sounding heroic to Pakistani voters—will not realistically help end the economic crisis. Given this situation, Pakistan stands between the unbelievable optimism of Dar and the uncertain, stand-alone charisma of Khan. The political map of Pakistan in this unprecedented economic crisis is scary, with people unrealistically seeming to put their trust in leadership least suited to a situation requiring foreign policy flexibility and avoidance of unnecessary challenges to countries linked to Pakistan’s economy.