Pakistan is in a fix as it has entered into a vicious cycle of borrowing loans to pay off the debts it had taken earlier, thus displaying the scenario that the country’s economy will spiral out of control as even friendly countries refused to provide any more easy financial bailout or interest-free loans to Islamabad, Asian Lite reported.
Pakistan’s total circular debt stood at PKR 2.523 trillion at the end of the last fiscal year in June 2022. Pakistan faces a severe cash crunch, with foreign exchange reserves reaching an all-time low of USD 4.301 billion by the week that ended on March 3, as per the Asian Lite report. This decline has left no space for the Pakistan government to pay back its foreign debts without borrowing more from friendly countries.
Pakistan’s foreign exchange reserves reduced to USD 5.6 billion, the lowest in almost nine years and enough to cover less than one month of imports. The deteriorating economic outlook resulted in downgrades, forcing authorities to announce austerity measures to reduce energy bills and save dollars.
Pakistan, in the past, has always relied on friendly nations like Saudi Arabia to tide over economic crises but this time the Kingdom has refused to provide any more easy financial bailout or interest-free loans to Pakistan.
Pakistan’s economy continues to struggle as it continues to borrow money to pay off the debts it had taken earlier. Due to this vicious cycle of debt and partial payments, the economy has been spiralling out of control, and a financial catastrophe has been brewing for some time, writes Dr Sakariya Kareem in Asian Lite.
Pakistan’s current economic situation is evidence of the unrelenting issues in the structure of the economy, and the country’s financial elite largely remains engaged in securing different subsidies, even if it makes the country borrow more and add to the existing debt.
Last month, Saudi Arabia extended a loan of USD 3 billion at 4 per cent to Pakistan last year. However, lately, Saudi Arabia has refused to provide any more easy financial bailout or interest-free loans to Pakistan, unlike in the past, as per the Asian Lite report.
Riyadh has made clear that any further extension of loans would hinge upon Pakistan signing a deal with the International Monetary Fund (IMF). Saudi Arabia’s decision to refuse to give any further bailouts or interest-free loans to Islamabad has left the Pakistan government in shock.
Saudi Arabia has conditioned fresh interest-bearing loans and investment on Pakistan implementing monetary and fiscal reforms along with a reduction in its current account deficit conditions similar to those set by the IMF. Pakistan will find it increasingly difficult to secure international loans if the IMF loan agreement is not made soon.
IMF has asked Pakistan to provide external financing assurances before it takes the next step with Islamabad to release the bailout tranche. Only China, which owns around 30 per cent of Pakistan’s external debt, and is its largest creditor has been coming forward to extend loans to Islamabad.
Pakistan will get a USD 1.3 billion loan from the Industrial and Commercial Bank of China (ICBC), which will take the total relief to USD 2 billion for Islamabad and which is seen at risk of default. As per the news report, Chinese loans have always been high on interest, as per the news report.
Chinese loans are provided at 4 per cent interest rates, which is almost four times higher than other international lending bodies. The higher interest rates make it difficult for nations to continue repayment, Asian Lite reported. The loans which China gives have never been very benign in nature and have been accompanied by major geopolitical leverage.
As Pakistan grapples with economic challenges, the IMF’s bailout programme hangs in limbo despite the Shehbaz Sharif-led government’s attempts to provide the country with financial stability. The IMF has announced stricter requirements for resuming the loan program for Pakistan.
The release of the IMF money will help attract some forex funds from foreign banks and from friendly states, including Saudi Arabia, China and the UAE, as per the Asian Lite report. Pakistan has been relying on the IMF for balance of payments support and harsh conditions imposed every time by the global lender are nothing new for Pakistanis.
With a total of 22 IMF programmes, Pakistan has remained under a multilateral lender’s shadow. However, the IMF conditions this time appear to be too difficult for Pakistan. Unable to meet all the commitments has resulted in a harsher IMF attitude. (with inputs from ANI)
