Bill exchange proposal
UN Secretary-General António Guterres has fervently pleaded for significant debt relief for developing countries.
At the conclusion of his “solidarity visit” to Pakistan, he vowed to fervently support “debt swaps” with the IMF and World Bank as well as at the G-20 summit in order to allow poor and middle-income countries, including Pakistan, to use that money to invest in climate resilience, sustainable infrastructure, and a green economic transition rather than repaying loans to the creditors.
Mr. Guterres referred to the flood destruction brought on by the enormous monsoon rains and glacier melt as “climate slaughter” and stated once more that the relief he was referring to was “an issue of justice and not of compassion.”
He said this before leaving for New York: “Pakistan lacks the wherewithal to make up for the loss of lives, crops, and cattle. The country needs enormous support from those who brought about the predicament.
Pakistan’s total external debt and liabilities have already increased to $130.2 billion, or 39.7 percent of GDP, and the cost of debt servicing has increased to over $15 billion over the past fiscal year, which has hampered growth and development by leaving the nation with little money to invest in the social sector and disaster relief. Other than that,
The nation is essentially trapped in a cycle of debt repayment and budgetary support since it must borrow more money every year. Pakistan’s external funding requirements were predicted by the IMF to be slightly less than $31 billion for the current fiscal year and to rise to $39.1 billion by FY27.
Massive flooding has resulted in enormous economic losses and food shortages, necessitating a significant increase in external financing in the short- to medium term. This will require the government to take on additional debt in order to cover the rising import bill and maintain liquidity in the face of dwindling foreign exchange reserves.
If the wealthier countries and multilateral lenders accepted the UN secretary general’s suggestion, it would give many developing countries a chance.
For a number of reasons, the 1996 IMF and World Bank effort on Heavily Indebted Poor Countries, which sought to ensure that no poor country faced a debt burden it cannot manage, did not have the desired effect. However, it helped assist the recipient countries to increase their spending on social services including infrastructure, education, and health.
In fact, reducing or eliminating our debt is not a long-term answer to our liquidity issue. However, there is a good chance that a favorable response to the UN secretary general’s call for debt swaps would give nations like Pakistan, which experience ongoing climate-related disasters in addition to severe financial challenges, some room to increase their spending to combat the effects of natural disasters on their economies.