Pakistan is grappling with economic challenges primarily due to its significant debt, reaching around USD 125 billion in 2023. A substantial portion, approximately one-third, is owed to external creditors, with China being a major contributor to this debt burden. The staggering levels of debt have become a major factor affecting Pakistan’s economic stability.
Cash-strapped Pakistan has reached out to its ally China, seeking a financial assistance of USD 2 billion for a year. Caretaker Prime Minister Anwaarul Haq Kakar, in a letter to Chinese Premier Li Qiang, requested to roll over the debt as the loan’s deposit time concludes on March 23. Expressing gratitude for China’s prior financial support, Kakar highlighted that Pakistan secured a total of USD 4 billion in loans from China, alleviating pressure on external debt payments and stabilizing foreign exchange reserves. This follows the UAE’s rollover of Pakistan’s maturing loan of USD 2 billion, and Saudi Arabia’s deposit of USD 5 billion with the State Bank of Pakistan.
In response to the UAE’s loan rollover, the interim government has urged the International Monetary Fund (IMF) for talks on the last loan tranche of USD 1.2 billion. The upcoming IMF mission is crucial for securing the final tranche and initiating negotiations for a new long-term program. Former Finance Minister Ishaq Dar, representing the Pakistan Muslim League-Nawaz (PML-N), stated that if his party wins the elections and forms the government, decisions regarding a new IMF program will be expedited. Pakistan’s strategic financial moves and engagements with China, the UAE, Saudi Arabia, and the IMF underscore the country’s efforts to navigate economic challenges and secure vital support to stabilize its financial situation.
Former finance minister Ishaq Dar, a four-time finance minister in Pakistan, revealed that if his party, the Pakistan Muslim League-Nawaz (PML-N), decides against entering the IMF programme, immediate implementation of belt-tightening measures would commence. This statement comes as the IMF made adjustments in its recent staff-level report on available financing to Pakistan. The Washington-based lender increased the projection of budget support loans to USD 3 billion but reduced project financing to USD 3.7 billion for the current fiscal year. The overall external financing requirements have been adjusted to slightly under USD 25 billion, incorporating minor reductions in current account deficit projections.
According to the report, the IMF made a modest adjustment of USD 575 million in the current account deficit projection, now estimated at USD 5.7 billion or 1.6% of the GDP, appearing on the higher end. These adjustments reflect the IMF’s ongoing evaluation of Pakistan’s economic outlook and financing needs. Ishaq Dar’s mention of potential belt-tightening measures underscores the importance of political decisions in shaping Pakistan’s economic policies, particularly concerning engagement with the IMF and addressing financial challenges. The adjustments in the IMF’s projections highlight the fluidity of Pakistan’s economic landscape and the need for adaptive measures to navigate current fiscal realities.
Pakistan faces severe economic challenges, teetering on the brink of a significant financial default. The dire situation stems from a lack of long-overdue structural reforms, urgently sought by global creditors like the IMF, the World Bank, and bilateral partners such as China and the UAE. At the heart of Pakistan’s economic woes is its staggering debt, reaching nearly USD 125 billion as of 2023. A substantial portion of this debt, around one-third, is owed to external creditors, with China being a major contributor. The mounting debt burden has become the central factor driving Pakistan towards a precarious financial state, emphasizing the critical need for comprehensive and timely reforms to stabilize the economy.