Explained: Pakistan's deep debt dilemma; Is there a way out with a new government taking shape?

By Team Asianet Newsable | First Published Feb 14, 2024, 7:17 PM IST

In the gripping financial saga, Pakistan teeters on the edge of a brutal debt crisis, raising pressing questions about its economic survival. Can strategic measures rescue the nation from this treacherous cliffhanger, or is it a descent into fiscal uncertainty?

Pakistan's debt crisis is looming high as the latest IMF package will be running out in a month. The elections that were held last week in the South Asian nation gave a grey picture of the political stability aspect. Nawaz Sharif's PML-N party came out as the largest party while Zardari's PPP came second.

Despite various restrictions on Imran Khan's PTI, the party leaders participated in the general election as independent candidates winning more than Nawaz Sharif's PML-N. In such a grand scheme of things, the People's Party of Pakistan holds the key to Islamabad and Nawaz Sharif is inching closer towards striking a coalition government with Bilawal Bhutto Zardari.

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One of the biggest challenges of the newcomer government will be settling the debt crisis which has blown out of proportion. Pakistan has a 70 percent Debt to GDP ratio which is the worst of a sizable economy in the world. The IMF immediately sanctioned a $3 Billion programme under the caretaker government which runs out next month.

The $3 Billion loan provided a temporary relief however, Pakistan’s forex reserves stand at $8 Billion. With such a miniscule figure, Pakistan can import essential items for only two months. Hence, another loan package from the IMF will be on the immediate agenda of the upcoming government.

Pakistan also has a $1 Billion bond payment to make in two months which will further bring down the forex reserves. The caretaker government before leaving the office had already discussed another deal with the IMF through which the South Asian nation will receive a $700 million cash injection that will soften the blow for a few days and give time to the new regime in Islamabad.

An immediate solution to the looming crisis is not within the reach of Pakistan. Years of economy-friendly policies and ground breaking privatization initiatives could start the fading away of the problem. However, with political instability crossing estimates, Pakistan is likely to be entrenched in the problem far more than it warrants.

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