In light of outstanding loans that are yet to be paid, along with a rising current account deficit, the Ministry of Finance and Economic Affairs Division has predicted that the internal sector will be put to the challenge in the upcoming fiscal year. As a solution, the government has embarked upon a search for new resources and rightly so. However, the fear is that we may be getting trapped in a vicious debt cycle if our fix to the problem is more loans. It is vital that we stay away from a path that will create hardships for years to come.
According to various reports, our government must pay back $7 billion within the first six months of the current fiscal year—$10.4 billion if we take into account the entire year. This is an extraordinary amount of debt, the repayment of which several countries across the globe are entitled to.
Owing to the pandemic, Pakistan was fortunately one of the few countries that qualified for temporary debt relief. Matters would have been much worse if the amounts also had to be paid back with interest.
Add to this conundrum the problem of the current account deficit which has been steadily increasing in the last two months—$299 million in January alone. Not only will such financial circumstances put pressure on the external sector of the country, since exports need to be brought much higher now more than ever if we are to combat this fiscal inconvenience, but it will also put the internal sector in a tough bind. More often than not, it is the end local consumer that is protected the least and stands to get affected the most.
There is an immediate need for the authorities to pool their resources, efforts and capabilities so that enough revenue can be collected, or sourced, to repay all the debt that we have found ourselves in. Any delays will cause interest payments to rise. However, it is also vital that a careful approach is adopted as debt servicing will take away from our precious resources and seeking more loans will trap us.