Daily Times

Pakistan’s forex reserves have hit new lows, dropping for the fourth consecutive week to below $4.2 billion, barely enough to cover a month’s worth of imports. As we muddle through the final stages of this economic crisis, there is a real danger that the country could default on its debt, which could lead to intensifying political turmoil amid already surging terrorism. Our stability increasingly depends on the outcome of an ever-worsening economic crisis.

Amid skyrocketing inflation, and political conflict between the coalition-led PDM and Imran Khan, Pakistan may not be able to fulfil its external debt obligations. This burden has been exacerbated by the derailment of the $6.5 billion IMF program we entered in 2019 and our inability to satisfy the extensive list of preconditions attached to the loan. Currently, a major share of our debt is owed to multilateral institutions such as the World Bank, the Asian Development Bank and the IMF, amounting to roughly $45 billion. While this accounts for a significant amount of our total debt, multilateral debt doesn’t pose an imminent threat to our security. The terms of most of these loans are concessional with repayment timelines spanning 18-30 years, meaning we have more than enough time to cover our tracks.

The real challenge lies in our private debt, much of this in the form of private bonds such as Eurobonds and global Sukuk bonds, amounting to $7.8 billion and likely to swell to $9 billion by the end of the fiscal year. Most commercial loans come with steep terms; that is, they have to be repaid to lenders between one to three years. Indeed, these repayment pressures are finally beginning to catch up with us. With earnings from exports and foreign direct investment projected to remain subdued, it is unlikely that we can keep up with the pace of our enormous responsibilities.

Now might be the time to consider a preemptive restructuring of debt, enabling the country to reduce repayment pressures and spare scarce dollars in the economy to finance the current account deficit. The window to act decisively is rapidly closing in on us-we must make use of it while we still can. *