A Pakistani think tank released a comprehensive report on the country’s debt profile over the weekend, describing it as “alarming” while calling the borrowing and spending patterns as “unsustainable.”
Pakistan has accumulated massive debt burden over several decades due to multiple factors, including low revenue collection and persistently high current account deficits. These challenges have led the government to borrow both domestically and internationally to finance its budgetary gaps and development projects.
In 2018, the country turned to the International Monetary Fund (IMF) for a bailout package to address its external financing needs and implement economic reforms to restore macroeconomic stability. In addition to that, it sought financial support from friendly nation such as China, Saudi Arabia and the United Arab Emirates, seeking bilateral assistance and deferred oil payments to ease the external financing pressures.
However, it was forced to carry out long-term structural reforms to address teething economic problems and faced the issue of spiraling inflation and an overall mood of financial discontentment in the country.
“In FY-2024, Pakistan will need to pay back an estimated USD 49.5 billion in debt maturities (30 percent of which is interest, and none of which is a bilateral or IMF loan),” Tabadlab said in its report released on Sunday. “Debt accumulation has been overwhelmingly used to continue fostering a consumption-focused, import-addicted economy, without investment in productive sectors or industry.”
“Pakistan’s debt profile is alarming, and its borrowing and spending habits are unsustainable,” it added. Tabadlab noted Pakistan’s debt per capita has grown from USD 823 in 2011 to USD 1,122 in 2023, registering a 36 percent increase.
During the same period, however, the country’s GDP per capita declined from USD 1,295 in 2011 to USD 1,223 in 2023, reflecting a six percent decrease.
“This means that Pakistan’s debt is growing at a much faster rate than its income, widening the financing gaps, necessitating further borrowing,” the report explained.
Tabadlab noted the quantum of debt Pakistan required was growing faster than the net output of the economy. This, it said, implied the economy’s ability to grow or increase output was getting constrained, adding that the situation required “transformational change.”
“Unless there are sweeping reforms and dramatic changes to the status quo, Pakistan will continue to sink deeper, headed toward an inevitable default, which would be the start of the spiral,” it said.
It also pointed out the climate needs were inevitably exacerbating Pakistan’s debt profile, though it maintained the country should leverage climate swaps to mitigate both problems.
Pakistan’s domestic and external debt and liabilities stand at Rs77.66 trillion or $271.2 billion. Much of it comes from multilateral and bilateral sources, though the amount also includes borrowings from commercial banks and its reliance on bonds.