Pakistan’s economic condition continues to deteriorate

INTERNATIONAL DESK: Pakistan is one of the fifty-two countries facing a severe debt crisis and the repayment and servicing of external debt are amongst the most severe issues faced by the country.

According to Islam Khabar, persistent NSE 0.60 % borrowing creates a spiral with more borrowing leading to an impending economic crisis.

Evidence supports the view that a large portion of the government debt has a negative impact on economic growth potential, and in many cases, the impact gets more pronounced as debt increases.

Reports say that the high degree of indebtedness has made Pakistan more vulnerable to economic shocks and weakened it politically vis-a-vis external lenders.

With an external public debt of over USD 90 billion, Pakistan is clearly on the brink of an economic disaster.

Citing the Ministry of Economic Affairs data, Islama Khabar reported that Pakistan made a net addition of USD 4.77 billion in the first half (July-December 2021) of the current fiscal year to its total external public debt of USD 90.6 billion.

Consequently, reserves of the State Bank NSE 0.22 % of Pakistan (SBP) plummeted to USD 10.308 billion, a decrease of USD 190 million. External debt repayments resulted in the rapid descent in reserves.

According to official figures, reserves which the SBP currently possesses can cover imports, for only about 1.54 months.

In addition, the decline of foreign exchange reserves is a result of Pakistan’s inflation of twin deficits, a lack of foreign currency inflows, and a sharp increase in the foreign debt servicing obligations, Islam Khabar further reported.

Notably, Shehbaz Sharif’s government has increased the petrol and diesel prices by PKR 30 per litre causing a surge in the cost of production in the country.

This price hike came after talks between the Pakistan government and IMF in Doha. These discussions were aimed at reaching an agreement on policies at the conclusion of the IMF’s seventh review of its USD 6 billion programmes for Pakistan, which has been stalled since early April.

The IMF had refused to revive the USD 6 billion programme if Pakistan fails to remove the fiscally unsustainable fuel and electricity subsidies. It had given Islamabad two days to lift the cap for the continuation of talks. (PTI)