US think tank warns 'real danger that Pakistan could default on debt'
Islamabad (Pakistan), April 8: The United States Institute of Peace (USIP), a Washington-based think tank, has warned that there is "a real danger that Pakistan could default on debt," which could exacerbate political turmoil and terrorism.
The author of the report cautioned that the country is at risk of default due to its large external debt obligations, amid skyrocketing inflation, political conflicts, and increased terrorism. Pakistan is grappling with the fallout from the political crisis that began in April last year, when former Prime Minister Imran Khan was ousted with a no-confidence vote, as well as the derailment of the USD 6.5 billion International Monetary Fund (IMF) programme, according to The News.com.
Since late January, Islamabad has hosted an IMF group to talk about a series of policy steps to secure USD 1.1 billion in funding for the cash-strapped economy.
The funds are part of a USD 6.5 billion bailout plan approved by the IMF in 2019, which is vital for Pakistan to avert defaulting on external payment obligations.
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The deal will also open up new bilateral and multilateral funding avenues for Pakistan to shore up its foreign exchange reserves, which have dwindled to four weeks' worth of import cover.
According to The News.com, the USIP report highlighted four factors that are important to consider if authorities want to pull Pakistan out of its economic abyss: the composition of Pakistan's overall external debt, repayment pressure on the debt in both the short and medium-term, potential inflows that can offset debt outflows, and Pakistan's external debt management strategy.
As of December 2022, Pakistan had external debt and liabilities totalling USD 126.3 billion, of which almost 77%, or USD 97.5 billion, is directly owned by the government to various creditors. Meanwhile, government-controlled public sector businesses owe an additional USD 7.9 billion to multilateral creditors.
Pakistan's creditors are divided into four groups: multilateral debt, Paris Club debt, private and commercial loans, and Chinese debt.
According to the US think tank analysis, Pakistan must repay USD 77.5 billion in external debt from April 2023 to June 2026, which is a "hefty amount" for a USD 350 billion economy.
It should be noted that the majority of repayments will be made to Chinese financial institutions, private creditors, and Saudi Arabia during the next three years.
The major payments are due in June when a USD 1 billion Chinese SAFE deposit and a USD 1.4 billion Chinese commercial loan mature. Pakistani officials want to convince the Chinese to refinance and roll over both debts, as the Chinese government and private banks have previously done.
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