Rescheduling debt

With economic activities stagnating the world over, developing countries are facing an increasing financial crunch. This means lower fiscal gains and much reduced capacity to pay back loans that are already due. In this situation, the group of top 20 economies – the G20 – has announced a one-year relief to the poorest countries of the world. These countries include 76 countries that are perched at the lowest rung of the economic ladder in the world. This one-year relief is aimed at lightening the burden of debt servicing and helping them in their struggle to cope with the pandemic. This announcement by the world’s largest economies is timely and totally in sync with the need of the hour. But there is some uncertainty about Pakistan’s debt that may or may not be rescheduled. The G20 announcement does not specifically talk about Pakistan nor does it give any hint about Pakistan’s likely inclusion in the list of the beneficiary countries. The IMF and World Bank have also announced their support to this initiative by the G20 and that’s where a hope for Pakistan lies.

The developed countries must realize the threat to Pakistan’s economy from the prevalent crisis, and consider debt payment rescheduling to save Pakistan from total economic collapse. The prime minister of Pakistan has already appealed for a global initiative on debt relief as Pakistan is facing a huge debt burden coupled with inflation, poverty, and other problems. Pakistan has allocated billions of rupees in stimulus packages to save its sinking economy and after some time even feeding our population will be extremely difficult. Due to financial constraints and limited resources, the people of Pakistan will make use of the ‘partial’ nature of the lockdown and eventually move from their homes out to earn their livelihood which may spread the disease further. While economic activities are already at a standstill, due to partial operations in export-oriented units, the revenue will be insufficient to stop the decline in the economy. With this background, the Government of Pakistan has requested financial assistance under the IMF’s Rapid Financing Instrument (RFI).

This emergency financing is likely to allow the government to address additional and urgent balance of payment needs. This is important because it will also support policies that would make it possible to direct funds to the most affected sectors of the country such as social protection, daily wage earners, and the healthcare system. Though the latest figures of Pakistan’s debt after the first quarter of this calendar year ending on March 31, 2020 are not yet clear, we had seen a 40 percent increase in Pakistan’s public debt in liabilities in the previous 15 months. The total debt and liabilities stood at nearly Rs30 trillion at the end of the fiscal year 2018 and then crossed the Rs40 trillion mark in September 2019. This was not a good sign for the country, but in the current crisis there is apparently no other option but to request the International Financial Institutions (IFIs) to grant Pakistan a much needed relief in its debt schedule.