Daily Times

The rupee slumped more than 20 percent this year, making it one of the worst-performing currencies globally. But it appears that the worst is behind us now, with financial analysts speculating that it is unlikely that the currency will devalue any further. Instead of flailing into oblivion like many predicted earlier this year, Pakistan’s dollar stockpile has remained relatively stable at $4 billion since late February but further funding remains crucial to prop up the economy currently beset by supply shortages, with billions of dollars of debt rapidly approaching.

Our unimaginative budget for FY24 did not do much to impress the IMF but many remained cautiously optimistic that Pakistan might just pull it together in the end. Unfortunately, this is no longer the case. Debt restructuring, once a remote possibility that policymakers weren’t even willing to consider, is now on the table. In a drastic policy shift, Ishaq Dar announced that the government is now contemplating a decisive restructuring of its external bilateral debt-this is highly unorthodox for a country that has gone as far as to flat-out deny its external obligations in the past. But this disclosure is also a tragic admission that the IMF’s bailout program is not an option anymore.

As the discourse on debt restructuring gathers pace, it is crucial to consider the very real implications such a step might have for the Pakistani economy. Indeed, Dar’s announcement hasn’t excited everyone the same way. Ex-finance minister, Miftah Ismail, in particular, warned against any form of restructuring, arguing that it is almost inexorably followed by a massive contraction of a country’s GDP. Since Pakistan’s interest payments on dollar-denominated debt are low, the vast majority of its loans simply cannot be restructured-commercial debt, which accounts for the lowest percentage of our total debt, is the only of its kind that can be effectively restructured. Ismail, who was instrumental in negotiating both Pakistan’s seventh and eighth IMF review, before being abruptly removed to make way for Dar, raises a lot of important questions that we must mull over carefully and judiciously before committing to anything that has the potential to compromise Pakistan’s survival. *