Can a Greece default affect Pakistan?

A permanent default by Greece will not just weaken the region but will have consequences around the world

Web Desk July 07, 2015
Greece anti-austerity protest. PHOTO: REUTERS

Pakistan will have to share some of the burden in case of a possible permanent default of Greece, the Economic Times reported on Tuesday. 

Greece is edging closer to a 19-nation Eurozone exit. A permanent default by Greece will not just weaken the region but will have consequences around the world.

Greece defaulting would mean higher interest payments for other countries that have borrowed from the IMF many of which, far poorer than Greece according to a Barclays note. Similarly countries that contribute to the IMF fund will also receive lower interest.

Read:Greece reels in shock as banks shut

IMF policy dictates that it may levy an additional charge or adjust the existing ‘rate of charge’ on the countries that have borrowed from the agency, indicating excess outlay for Portugal, Ukraine and Ireland, which constitutes about 50 per cent of IMF's outstanding credit.

Amid calls for quick and decisive action on energy and taxation fronts, the International Monetary Fund (IMF) in June approved the release of $506 million loan tranche for Pakistan, ending the relatively easy part of the three-year bailout programme.

Read:Letter to IMF: More mini-budgets in the offing this year

The decision to disburse the loan tranche was taken by the Executive Board of the IMF that met in Washington and approved the seventh review of Pakistan’s economy for the period of January-March of the outgoing fiscal year. This paved the way for the release of the eight-loan tranche of $506 million that will be made available to Pakistan next week.

Read:Bailout programme: IMF approves release of $501.4 million to Pakistan

Counting the recent loan, the outstanding credit of IMF at the end of June stood at $91 billion. Pakistan’s GDP stands at $1300 per capita compared to Greece’s $20,000.

The article originally appeared on Economic Times