Staring at default, will Pakistan go for debt restructuring kicking and screaming?

After Sri Lanka, will Pakistan be the second South Asian nation to participate in the debt restructuring exercise? Amid deepening economic crisis and a stalemate in talks with the International Monetary Fund (IMF), Pakistan may be forced to go in for a debt restricting exercise to avert default. Pakistan’s foreign exchange reserves held by its central bank– the State Bank of Pakistan, dropped further to $2.9 billion on February 3 compared to $3.8 billion available on January 27.

Even if Pakistan manages a breakthrough with the IMF and receives financial assistance, it will be a question of time before it once again falls in the same precarious situation.

Latest data published by the SBP shows that Pakistan’s total reserves stand at $8.54 billion, which includes $5.62 billion held by the country’s commercial banks.

The country will have to make a repayment of $8 billion in the next three to four months.

An analyst told India Narrative that the main problem with the Shehbaz Sharif government is its unwillingness to acknowledge the magnitude of the problem.

“Till recently, the country’s finance minister kept saying that debt repayment would not be a problem. Not just that. He even went ahead and criticised the IMF,” the analyst said, adding that it is critical to start the debt restructuring exercise in time to avoid complications.

Earlier, Pakistan Finance Minister Ishaq Dar had assured that Islamabad will not default.

A strong critic of his predecessor Miftah Ismail, an overconfident Dar soon after assuming charge as finance minister started reversing decisions already taken by the former as part of the IMF mandate.

“Not a day passes that I don’t hear speculations of a default. There’s no chance of Pakistan defaulting on its debt payments,” he said addressing investors through a video link in December.

He also lashed out at the IMF saying he will not take “dictations” amid its delay in holding the ninth review with Islamabad.

“I do not care if they come, I don’t have to plead before them. I have to look at Pakistan’s interest first,” he said.

Cash starved Sri Lanka is also in negotiations for a debt restructuring plan.

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