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March 29, 2020

Debt relief

Editorial

 
March 29, 2020

As the number of affected people by Covid-19 has crossed the half-a-million mark, the economies of the world are grinding to a sluggish pace. Especially for the poorest countries of the world, the impact of Covid-19 has been devastating. Now to alleviate their pain, the World Bank Group (WBG) and the International Monetary Fund (IMF) are advocating a timely debt relief, and Pakistan is one of the 76 countries that may get some help on immediate liquidity needs. Though it is not a matter of pride to be included in the group of countries that are highly vulnerable to economic fluctuations, we don’t have much choice. Such relief is needed to counter Covid-19-related economic challenges. Iran has also urged the world for easing economic sanctions so that it can purchase life-saving drugs and vital supplies to sustain in this time of crisis. The IMF has assured Pakistan of an additional $1.4-billion lending through Rapid Financing Instrument (RFI). The resident chief of the IMF in Pakistan has assured Pakistan that the amount would be available to the country as early as possible.

The WBG and the IMF have also urged creditors to suspend debt payments of the poorest countries in the wake of the Covid-19 pandemic. It has now become evident that this global crisis will have severe economic and social consequences for most of the countries in the world, especially the poor ones. The worst impact of this downturn will be faced by a large population living in extreme poverty. For a country such as Pakistan, where at least 50 million people live below the poverty line and another 50 million or so are barely surviving on a daily basis, such debt relief will be a welcome help. Even before the surfacing of Covid-19 Pakistan’s gross national product had declined from $330 in Dec 2018 to less than $300 in Dec 2019. Though Pakistan is the fifth largest country in terms of population and the world’s seventh atomic power, its nominal GDP stands at the 42nd place in nearly 200 countries of the world, while in per capita terms we were at 150th position in 2019.

The 76 countries that are likely to benefit from this largess of WBG/ IMF have per capita national income under 1, 175 dollars. Now if Pakistan is also included in this list that means Pakistan’s per capita income has also gone down from an estimated $1388 in 2019. This is an alarming situation for Pakistan and though the suspension of debt payment will help temporarily, in the long run it will not solve our liquidity requirements if we do not pay attention to our lasting maladies. In the past too, we have taken advantage of such interventions from foreign donors and international financial institutions (IFI), we must reassess our priorities in terms of where our resources go. We are fast approaching an unsustainable debt situation and we need to prepare a comprehensive action plan by altering many of our official policies including defence and foreign policies.