Solvency issue

Soaring liabilities and debt-repayment concerns are taking a toll on the economy. The downslide in the form of slump in growth and exports has once again pushed Pakistan to the brink. Moreover, global credit agencies beg to differ in seeing a rosy picture of the economy, and do not approve of the policies in vogue. Moody’s has cut Pakistan’s sovereign credit rating to CAA1 from B3, citing increased government liquidity and external vulnerability. The monsoon floods and an incoherent macro-economic approach, despite a successful breakthrough with the IMF, have put Pakistan at the risk of a default. An immediate task before the financial gurus in the beleaguered coalition government is to raise, at least, $34 billion in order to stay afloat. And that seems to be a gigantic proposition given that the chips are down at home and abroad.

Finance Minister Ishaq Dar, however, believes the equation is not worrisome, and Pakistan can pull out somehow. What entails his confidence is anybody’s guess, but statistics paint a horrifying picture as inflation looms at 45% and foreign exchange reserves are in a moth-eaten mode. Last but not least, the deluge has dented with a loss of $30 billion that would take years to overcome the developmental nexus. If receipts and payments are any criterion, the economy faces a staggering deficit of $12 billion, almost equal to our current reserves. What further compounds the situation is abject political instability and the lack of confidence among the entrepreneurs and businesses, fearing a collapse of order in the political realm.

Rising solvency is an immediate issue, and the government will be better advised to focus on it. Pundits of doom are proposing a debt moratorium in an attempt to address the liquidity issue. This is why Pakistan is irked in seeking a debt-restructuring from the Paris Club. It is also bothersome as to what went wrong with the Fund and why more conditionalities are being slapped on an economy which is dove-tailed in crises. What is lacking is a firm perspective to put the ship in order, and the ambiguity is evident as Pakistan still keeps weighing options to buy oil from Russia or not.

Published in The Express Tribune, October 21st, 2022.

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