Pakistan is in the eye of a “polycrisis”, with its external debt almost doubling between 2015 and 2020, which has become the main driver of widespread economic problems in 2022, according to a new report of the United Nations Conference on Trade and Development (Unctad).
The latest report said that Pakistan’s export earnings were falling or stagnant over the same period.
As a net wheat and energy importer, the exposure to rising prices in those markets was a concern even before the war in Ukraine. A sharp spike resulting from the Ukrainian conflict led to significant import costs, which persisted through much of 2022, the UN trade body said.
Pakistani rupee had also seen a sharp fall in value (over 40% against the dollar since the beginning of 2020), adding to inflationary pressures and depleting foreign exchange reserves, the report noted.
“Pakistan needs to urgently address the failure to raise tax revenues. However, the damage from floods that hit the country in July and August 2022 is of such a magnitude that even with a more robust fiscal base, Pakistan would be facing severe financial stress.”
In the wake of Covid-19, Pakistan was amongst the first to sign up for the G20-backed Debt Service Suspension Initiative (DSSI), which allowed it to suspend payments to bilateral creditors between May 2020 and December 2021.
At present, the country is negotiating with the IMF to secure new loans to avoid defaulting on external debt in the short run.
Nearly $31 billion of concessionary capital, which would help create the fiscal space needed to respond to any exogenous shock, was tied up in ongoing negotiations over the programme, the report said.
Over the next five years, the IMF estimates the annual external financing needs of Pakistan at $35 billion.
Against a worsening economic backdrop, last year’s monsoon rains were an estimated 50% stronger than normal, flooding one-third of the country and leaving 8 million people displaced.
The loss and damage from the floods have been estimated by the World Bank (2022) to amount to more than $30 billion, or 8% of Pakistan’s GDP.
Published in The Express Tribune, April 14th, 2023.
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