Pakistan is seeking loans to avert default but bigger problems lie ahead

Pakistan’s economy is now being run almost entirely by borrowed money. Even as last week Pakistan managed to secure fresh financial assistance of about $4 billion from Saudi Arabia and United Arab Emirates, which will help Islamabad avert a debt default, the money comes in the form of a rollover of an existing loan. The additional loans will only add to Pakistan’s debt burden. The country has to make a repayment of $73 billion by 2025.

“It may have got a breather now but the country needs to revive the economy – or else it has to keep borrowing from one to repay another, that is the exact situation today,” an analyst told India Narrative on condition of anonymity.

As on January 6, its foreign exchange reserves stood at $4.34 billion—most of it has come as loans from other countries. The lifeline provided by Saudi Arabia and UAE will somewhat help in boosting the reserves while allowing Islamabad to resume talks with the International Monetary Fund.

Political uncertainty has intensified after the ousting of former Prime Minister Imran Khan. The Pakistan Tehreek-e-Insaaf leader, since his exit from the government, has staged protest meetings and rallies against the PMN-L government led by Prime Minister Shehbaz Sharif, brother of party supremo Nawaz Sharif and has even called for early elections. Much to the embarrassment of the Sharif government, Khan’s party even won the by elections held in July and October.

A Brookings study has said that the country’s economic crisis has been brewing even before the catastrophic floods. “An economic crisis comes around every few years in Pakistan, borne out of an economy that doesn’t produce enough and spends too much, and is thus reliant on external debt. Every successive crisis is worse as the debt bill gets larger and payments become due,” it said, adding that Islamabad may be forced to restructure its loans.

Sharif at the passing-out ceremony of probationary officers of Pakistan Administrative Service (PAS) yesterday said that it is embarrassing to seek further loans. That apart, financial assistance will only add to Pakistan’s debt burden as the country will also have to repay the loans at a specified time.

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