Will Pakistan need a bailout from IMF?
islamabad/karachi — For many in Pakistan it’s a question of when — rather than if — the nation will go to the International Monetary Fund for financial support to pay its soaring foreign debt as reserves dwindle.
External debt and liabilities has increased 76 per cent to Rs10.6 trillion ($92 billion) since June 2013, taking the ratio up to 31 per cent of gross domestic product, the highest in almost 6 years. Pakistan’s debt will continue to grow as it has the highest financing need as a percentage of GDP in emerging markets over the next 2 years, according to IMF projections.
It’s not an unusual situation for Pakistan, which has gone through decades of debt blowouts and balance-of-payment imbalances. South Asia’s second-largest economy has received 12 IMF bailouts since the late-1980s and completed its last loan programme just 2 years ago.
The nation is once again facing a crunch after foreign-exchange reserves dropped to the lowest in more than three years, forcing authorities to devalue the currency twice in recent months and hike interest rates. To help repay debts and keep the economy going, another IMF loan is possibly the next step.
“It’s a familiar situation,” said Yousuf Nazar, a former Citigroup banker and author of The Gathering Storm: Pakistan. “We have rising debt servicing and faltering growth — the short-term solution is the IMF, it’s probably a matter of months.”
Pakistan’s economic picture was generally rosy up until the past year. The current government, which will hand over to a caretaker administration on Friday ahead of July 25 elections, has managed to boost economic growth to its highest level in a decade. That was aided in part by low oil prices, the completion of a $6.6 billion IMF programme in September 2016 and the Chinese financing of about $60 billion in infrastructure across the country as part of Beijing’s flagship Belt and Road initiative.
The growth boom has come with rising imports of Chinese machinery and other goods, widening Pakistan’s current-account deficit by 50 per cent this year. Added to that is Islamabad’s mounting debt to Beijing and questions over how it will eventually repay billions of dollars over the medium to long term.