Repayment concerns

Pakistan is facing a significant challenge as it prepares to repay maturing foreign debt and interest to the tune of over $30 billion in the next few months. The SBP data says the country needs to repay about $26.48 billion in principal and make interest payments of $3.86 billion on debt due between August 2024 and July 2025. However, a significant proportion of the maturing debt is owed to creditors that regularly allow their loans to roll over, meaning the actual payments can be expected to end up being deferred or reduced. Still, the ballooning number reflects the permanent debt crisis that the country finds itself in, and the urgent need for the government, economic managers, planners and parliamentarians to explore strategies to boost the nation's foreign income and reduce external expenditures.

A significant part of the problem remains political - nobody is willing to undertake the necessary reforms for fear of ceding popularity. Since at least the 1990s, when economists began warning of our debt becoming unsustainable, PPP, PML-N, PML-Q and PTI governments have all responded by adding billions to the debt mountain without offering any solutions that would bring down the debt substantially.

One of the few bright spots though is the reduction in external financing requirements, which some estimates are placing at a nine-year low of under $19 billion, compared to about $25 billion annually for the past few years. Under the right circumstances, policymakers could use the additional wiggle room to work on solutions that will help steadily reduce new financing requirements without compromising our ability to repay maturing debt. Doing so, however, will require either a legal framework, or at least an honest 'gentleman's agreement', to work within specific fiscal and monetary parameters no matter who is in power. Given the widening nature of political fault lines over the past few years, the latter option seems almost impossible.