The Debt Disaster
Pakistan’s growing debt problems catch on, as odds of default increase.
K-Electric is investing PKR 484 billion at the risk of criticism of its investment plan.
The government recently rolled back electricity packages for farmers and exporters. Namely, the Zero-Rated Industrial Packages and Kissan Package have been discontinued as part of the circular debt management program; a necessary program required by the IMF. The shrinking exports, which fell to USD 18.79 billion, already signal the shutdown of industrial sector companies. Additional power tariffs will have lasting impacts on the future of export-oriented industries. However at the same time, K Electric is investing PKR 484 billion at the risk of criticism of its investment plan.
The release of funds after the IMF’s ninth review hinges on Pakistan’s compliance with one primary requirement; controlling the circular debt. Even after assuming that Pakistan will fulfill its obligation, at a great local cost nonetheless, Moody’s Investors Service further downgraded Pakistan’s debt rating to Caa3 signifying high credit risk. Furthermore, the economic outlook has changed from stable to negative.
This assessment is in line with Pakistan’s rising debt cost since interest payments are estimated to reach 50% of government revenue in FY 23. The World Economic Forum has already stated that rising living expenses will exacerbate instability in countries like Pakistan, Egypt, and Lebanon. As a matter of fact, CPI inflation soared by 31.6% in February year-on-year with no sign of slowing down.
The current instability, along with signs of social unrest will have long-term impacts on the state of the economy. However, solving these issues through short-term solutions, such as canceling power subsidies, will only result in more unpreparedness for the future.
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