Daily Times

There are important lessons in Sri Lanka’s debt default for countries with weak external accounts and high foreign debt, just like Pakistan, which is also feeling the pinch of the slowdown in global economic activity. Colombo was forced to announce a debt payment moratorium on Tuesday because it is unable to pay back any more of the $51 billion it owes to creditors, just under half of which is market borrowing through international sovereign bonds, including one worth $1 billion due to mature on July 25. The trouble began when the pandemic cut down tourism earnings as well as remittances, and the country was forced to freeze imports to save foreign exchange for loan payments.

But that strategy didn’t quite pan out, and Sri Lankans have for months been treated to day-long power cuts, food and fuel shortages, and steeply rising inflation and unemployment. And while the country’s $51b foreign debt pales in comparison to Pakistan’s astronomical $130b or more figure, and its population of 22 million doesn’t even compare to Pakistan’s 122-132 million souls, and even though the pandemic impacted the two countries very differently, there are still similarities in the economic slide that Pakistan is on and the one that Sri Lanka took all the way to sovereign default.

We, too, have a current account time bomb that will go off sooner or later. And we, too, will find our forex reserves short of levels needed to keep up with repayments unless some of our donor friends keep rolling over some of our bigger loans till we are able to stand on our own fiscal feet. And it’s not as if things are going well with the IMF either because if the ongoing bailout program can hit roadblock after roadblock, to the point of being repeatedly suspended, there’s precious little hope for a fresh program that would deal with issues like default, etc.

Pakistan clearly needs to pull its socks up. It’s not learning from its own mistakes or those of others. And, at the risk of offending over-zealous, west-hating, patriots, we have little time in which to either shape up or prepare for a crash default of our own. *