Debt Dystopia
Pakistan’s addiction to debt may exacerbate its issues in the absence of an effective management strategy.
Overall, the country’s debt stock went over PKR 59 trillion as of May 2023, making it quite unmanageable!
The IMF has reached a ‘Stand-By Arrangement’ with Pakistan, resulting in the crucial release of around $3 Billion. The program temporarily replaces the previously delayed Extended Funds Facility, especially focusing on reversing damages caused by external catastrophes faced by Pakistan after August 2022. One of the key focuses remains to provide a policy anchor to Pakistan to make structural changes. Either way, the SBA fundamentally remains a flexible source of help for countries to solve external account problems. So what is Pakistan’s long-term plan?
In addition to the IMF funding, Pakistan aims to borrow more than PKR 11 trillion from various domestic sources. On the one hand, the generally large domestic borrowing needs lead to crowding out, and also render the domestic markets highly susceptible to macroeconomic shocks. Sensitive market conditions can further assist in jeopardizing the government's liquidity management and increasing the cost of borrowing. Overall, the country’s debt stock went over PKR 59 trillion as of May 2023, making it quite unmanageable already.
The government’s medium-term debt management strategy claims no new solutions either, merely suggesting accounting gimmicks to temporarily stabilize numbers. Pakistan has an interesting obsession with ‘numbers’, but what about the structures and mechanisms behind these numbers? Current fiscal management reflects a lack of understanding of these mechanisms. Pakistan has avoided default but it will have to fight tooth and nail to escape its structural malaise.
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