By Sardar Khan Niazi
Debt crisis, political instability, complicated domestic policies, and a difficult external environment have pushed our dear homeland to a challenging economic juncture.
People are suffering from the high cost of living. Price hikes and Joblessness are troubling the majority of the population. The disparity has widened and as a result, the crime rate has swelled, the cost of law enforcement has gone higher, and discrimination against the less privileged groups has become more abysmal.
Devastating floods have given rise to the current economic crisis in the country, which was exacerbated by factors like the global recession, the Ukraine-Russia war, etc. Reportedly, Pakistan is on the brink of default or at least in the danger zone as inflation has risen, the dollar has become stronger, the cost of borrowing has mounted and global growth has slowed down.
Default means a breach of contract or broken promises. The IMF defines a country as in default when the government is either unwilling or unable to repay its creditors.
The foreign exchange reserves held by the SBP have fallen to $5.82 billion, the lowest level in nearly eight years and hardly enough to cover one month of imports. A recent swift depletion of forex reserves is the result of the $1 billion payment against the maturing Pakistan International Sukuk and other external debt repayments.
Although the government is denying it recurrently and strongly, the country reportedly is facing a default-like situation in terms of meeting its international financial obligations because the foreign exchange reserves are at a seriously low level.
Forex reserves are just about enough to pay for the average monthly imports. Just to put the situation in its due context, economists say that for any country to be solvent, foreign exchange reserves should be the equivalent of at least three months of the import bill.
Our political leaders will surely say what suits their own interests. We have observed on many occasions that government and opposition conveniently adjust their views on the national economy. We should take seriously the word of independent economists. A default is going to be extremely harmful in every sense of the word.
Taking into account our huge population and dependence on imported goods, we believe a default, if it really happens, will create turmoil in the country because the supply of imported fuel, edible, industrial material, and just about everything will stand disturbed.
Despite the fact that the government has been trying to avoid the looming threat by meeting the conditions imposed by the International Monetary Fund (IMF) to get the next tranche of the negotiated loan. One wonders if that will be enough to help us wriggle out of the tight spot, we find ourselves in.
Pakistan has to pay more than $33 billion to its foreign lenders in the coming financial year, including debt repayments of $23 billion and $10 billion in the current account deficit. In order to ensure enough reserves to pay its debt obligations, reduce its massive current account deficit, and evade the sword of default, Pakistan is in desperate need of foreign aid.
The bitter pill of IMF aid will have the best conceivable result if Pakistan sincerely starts to decrease the wastage of resources over non-productive state and non-state programs.
Apparently, it is quite difficult to do, as Pakistan is by practice a spendthrift state. It spends more on administration, which allegedly is corrupt and inefficient.
Considering the remuneration and benefits given to different bureaucratic services, the increase in legislators’ salaries, and the retirement benefits of privileged services and officials, no one can say Pakistan is a cash-strapped country. Using the loan money most deftly, in the national interest is the foremost requirement.
