Pakistan Prime Minister Imran Khan would be worried as the country’s debt to GDP ratio has soared to 107 per cent prompting many economists to believe that the country is slipping into a debt trap.

 

Debt to GDP ratio is a simple barometer of measuring the country's repayment capacity in relation to its economic output. Naturally, the higher the debt to GDP ratio is, the higher the risk of default.

 

“Many countries that have received financial assistance from China through the Belt and Road Initiative have been caught in a debt trap. Pakistan’s debt level has risen to an alarming level with economic growth slowing down, it should be a cause for worry,” an analyst on condition of anonymity said.

 

According to The Express Tribune, the government’s debt “grew at a double-digit pace to Rs35.8 trillion by November 2020 on an annualised basis” which is an addition of a whopping Rs3.7 trillion in one year.

 

“When Imran Khan became prime minister, the central government’s debt was close to Rs 24.2 trillion and the last Pakistan Muslim League-Nawaz (PML-N) government added Rs5.65 billion a day to the public debt. On average, per day addition to the public debt has jumped to Rs13.2 billion since the Pakistan Tehreek-e-Insaf (PTI) came to power,” the newspaper noted.

 

GDP growth hit

 

The country’s economy which was already in a critical state was further hit by the coronavirus pandemic. The East Asia Forum noted that the south Asian country’s GDP growth rate for 2019–20 contracted by 0.4 per cent. This is “the first time it fell negative in seven decades,” the article said adding that the per capita income too dropped from $1625 to $1325.

 

However, what could be worrisome for Pakistan is that its economy has been slowing down since 2018. In 2018, its GDP growth was 5.8 per cent. Despite the much hyped China Pakistan Economic Corridor (CPEC) joblessness and poverty have increased.

 

Pakistan’s repayment capacity in question

 

Just a few days ago, Islamabad received another blow when a Pakistan International Airlines (PIA) passenger plane was held back in Kuala Lumpur by the Malaysian authorities over a British court case related to the airplane’s lease.

 

Many have raised an eyebrow over Pakistan’s ability to repay. That apart, relations with Saudi Arabia and UAE, which traditionally have had strong ties with Pakistan. Pakistan’s relations with Saudi Arabia and UAE have started to show cracks, as the Khan government has been trying to create a parallel Islamic countries block with Turkey. Last year, Pakistan had to repay part of the loan to Saudi Arabia for which it had to borrow from China. In 2018 the two nations signed a $6.2 billion agreement. As part of this agreement, a $3.2 billion oil package was provided to the cash-strapped Pakistan government by Saudi Arabia. However, Pakistan in August last year had to repay $1 billion of the $3.2 billion loan. Now there is rising uncertainty over loans from UAE. Reports have suggested that China’s assistance to Pakistan is also reducing.

 

According to Asia Times, the overall lending by the state-backed China Development Bank and the Export-Import Bank of China declined from a peak of $75 billion in 2016 to just $4 billion last year. Provisional 2020 figures show that amount shrunk to around $3 billion in 2020, it added.