ISLAMABAD: The new coalition government led by Prime Minister Shehbaz Sharif has been advised to seek debt relief from all domestic and external creditors, including the International Monetary Fund (IMF), and to create fiscal space for long-awaited structural reforms to avoid repeated difficulties in the external account.

The Institute for Policy Reforms (IPR) – a think tank headed by PTI leader Humayun Akhtar Khan – in a report entitled “What to do about Pakistan’s mountain of debt”, published on Monday, called for a immediate action to prevent the economy from a Sri Lanka-like collapse said “external debt and current account deficit are not only the biggest economic problems, they are a national emergency”, and therefore unusual steps.

He supported the government’s goal of reviving the IMF program, but said it was not enough to ask for more loans from the IMF. This way, Pakistan will never get out of trouble. Between 2015 and 2021, external debt has increased by more than 200% while interest and principal payments have increased by 250%. But exports have only increased by 3%, which will not help pay down the debt, hence the need for a study by article of what exports could increase rapidly, possibly with incentives because production of exportable goods has not increased

Think tank suggests unusual steps to avoid Sri Lanka-style meltdown

The report says that behind the repeated crises lies a collapse in policy-making. For example, Pakistan has a constant trade deficit. This is because of declining investment and production, but no effort is being made to increase it.

The think tank suggested the government ask the IMF for debt relief and go beyond the program to seek debt relief from all lenders in the form of an interest rate reduction, a reduction in the principal amount and an extension of the repayment period (the latter could add to indebtedness). To convince them, the authorities must follow a solid plan for economic growth and the correction of elite privileges.

Asserting that Pakistan has a credible reason to appeal, the IPR argued that if debt relief is not granted, rescheduling is another option, but from all creditors and without accrual. interest during the rescheduling period. Creditors should be made aware of the amount of external debt incurred by the economy and the amount Pakistan has repaid in interest and principal. The net transfer of resources in 20 years is negative at $5.22 billion. Over 70% of new debt is for balance of payments (BoP) support.

The report showed that despite large sums being repaid, outstanding debt had increased significantly by 228%, even as the net transfer to Pakistan was negative in 20 years and in most years a small proportion of the total amount disbursed. She observed that, whether concession creditors or other creditors, the share of interest in the total service is high. It varies from 20% for multilateral creditors to 51% for Paris Club lenders.

Posted in Dawn, May 17, 2022