Pakistan unlikely to default on debts: Ishrat

KARACHI: Pakistan will not default on its debt obligations as its external financing requirements are fully-funded under the International Monetary Fund’s (IMF) programme, Dr Ishrat Husain, the former central bank governor, said on Saturday.

“IMF’s financing is an assured financing, so Pakistan is not going to default [on foreign debt],” said the former governor State Bank of Pakistan (SBP) at a dialogue on “Sustainable Growth During Economic Downturn and High Inflation.”

The event was organised by Habib Public School Alumni Association.

"Pakistan's economic condition differs from Sri Lanka's because half of the South Asian island country's debt is sold on the global bond market."

In terms of the origin of the debt accumulated from foreign creditors, there is no comparison between Pakistan and Sri Lanka, he added.

Husain was an adviser to former prime minister Imran Khan for institutional reforms and austerity during the PTI government.

Pakistan owes 42 percent of its debt to multilateral sources, 40 percent to bilateral creditors, 7 percent to the global bond market, and 7 percent to commercial banks, according to Husain.

"The main problem is that we're taking out loans for non-productive reasons. Our import increase is enormous because we lack industry and manufacturing facilities," he said.

He said the lack of constancy and stability in government policies was also one of the big challenges facing the economy.

"How the foreign investors will come to Pakistan to make investments if there is no continuity in the economic policy," he questioned.

According to Husain, a combination of both external and domestic forces has led to the current crisis in the nation.

Supply channels were severely disrupted following the Covid, he said adding that the war between Russia and Ukraine had caused a dramatic increase in commodities prices worldwide. "Domestically, the political unrest disrupted economic activities following April 10. Additionally, the IMF loan programme negotiations' delay undermined foreign investors' faith in the economy," he said.

He said as if these problems were not enough, the devastating floods badly hit the country and such a combination of external and internal problems had never happened in the country in the past.

Meanwhile, Syed Shabbar Zaidi, the former Chairman Federal Board of Revenue said Pakistan’s growth rate was expected to be 2-2.5 percent in the current fiscal year.

He claimed it was important to distinguish between reality and perception.

"Is the nation's economy in decline? Is the decline in bank deposits or automobile sales?"

According to him, Pakistan's inflation increased as a result of the local currency's decline in value relative to the US dollar.

"Businesses are not performing as poorly as thought. According to Zaidi, four to five assets would be sold off, and the prices are higher than in the past.

"Not the businesses, but the state's failure is the true issue. There is no other option for a solution but state apparatus reform."

He claimed that although there was no serious discussion on economic failure, a 'specific appointment' was holding up the country's political system.

“We are not a 'going concern and heading towards local and foreign currency default. My conviction is there is no security threat. There is an economic and governance chaos/threat which is affecting the livelihood of the masses. Personal and political issues have 'camouflaged' the same,” Zaidi said.