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HomeBlogUrgent reforms needed: Pakistan's economy faces turmoil amidst pandemic woes

Urgent reforms needed: Pakistan’s economy faces turmoil amidst pandemic woes

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By Aqsa Sajjad

Pakistan’s economy has been facing an existential crisis due to its increasing external debt and liabilities, which stood at $126.3 billion as of December 2022. The country’s external debt has been on the rise, and nearly 77% of this debt, amounting to $97.5 billion, is directly owed by the government of Pakistan to various creditors. According to the latest data, Pakistan needs to repay $77.5 billion in external debt from April 2023 to June 2026. This amount is a hefty burden for a $350 billion economy, and it raises concerns about the sustainability of Pakistan’s debt burden and its ability to repay its creditors.

The major repayments in the next three years are to Chinese financial institutions, private creditors, and Saudi Arabia. Pakistan owes approximately $32 billion to China, making it the country’s largest creditor. The repayment pressure on Pakistan is further exacerbated by the fact that much of its debt is denominated in US dollars. This means that any depreciation in the Pakistani rupee increases the cost of servicing the country’s external debt.

Pakistan’s government has been implementing various measures to address the country’s economic challenges. These measures include seeking financial assistance from multilateral institutions, such as the International Monetary Fund (IMF), and implementing economic reforms to improve the country’s fiscal sustainability. However, the implementation of these reforms has been slow, and the country’s debt burden continues to rise.

The COVID-19 pandemic has further exacerbated Pakistan’s economic challenges. The pandemic has caused a significant decline in economic activity, leading to a sharp decline in tax revenues. At the same time, the government has had to increase spending on healthcare and social safety nets to support those affected by the pandemic. These factors have contributed to a widening budget deficit, which has further increased the country’s external debt burden.

To address these challenges, the government of Pakistan needs to take urgent and decisive action. It must implement economic reforms that improve fiscal sustainability, reduce debt levels, and stimulate economic growth. The government should also work to diversify its sources of financing to reduce reliance on a few creditors. Pakistan should also seek to improve its investment climate to attract more foreign direct investment, which can help stimulate economic growth.

The situation in Pakistan is undoubtedly challenging, but the government must take bold steps to address the crisis. Failure to do so could lead to a further deterioration of the country’s economic situation, which would have serious implications for the well-being of the Pakistani people.

The writer is a student of BS Journalism, semester 8 at School of Communication Studies, University of the Punjab, Lahore. She can be reached at [email protected]

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