Abid Hussain & Wajeeh Imam;
The financial crisis and the current debt situation in Pakistan require concerted efforts to find a sustainable traditional solution. Foreign debt is often created to promote economic growth, which is not possible in the context of domestic resources, technology, consumption patterns and economic management processes. In 2021, the public debt of Pakistan is estimated at Rs 40.279 trillion or US $222 billion which is 93.7% of the country’s gross domestic debt (GDP). About Rs 24.309 trillion the government has taken from domestic enterprises and about Rs 2.3 trillion the government has taken from the public sector enterprises. Similarly, from 2021 Pakistan’s external debt is now close to US $ 121.75 billion. Foreign debt is expected to increase to USD 118500.00 million in the last quarter of 2022. Overtime, Pakistan foreign debt is expected to be projected at approximately 118500.00 USD million at the very end of 2022.
On the domestic side, the heavy burden of paying off public debt has made the much-needed financial adjustment difficult and unorganized. In 2019, an increase in interest rates from 10.25% of GDP to 07% in year 2020 and an increase of 8.75% in year 2021 makes the decline in deficits difficult to achieve. Debt failure is apparently the main reason for the decline in GDP investment rates by 2020 and 2021. The rupee dollar exchange rate used in debt bulletin since the end of October 2021 at that time it was around Rs. 172 and currently the dollar price in 2022 is risen to Rs .177 and the external debt has been expanded. Pakistan debt reserves related to residual gross domestic product (GDP) or economic growth rate has also been risen.
In 2021, about $10.36 billion needs to payback by the government by virtue of external debts including interest installments and payments while expected inflows are assessed at $14.37 billion. During the initial 10-months of FY2020-21, the government has payback a measure of $7.52 billion including $6.31 billion as principal and $1.21 billion as interest installments. To accomplish its different commitments, the government acquired $10.5 billion as program and venture debts in a similar period. Along these lines, the net inflow of the loans (external) is $2.98 billion. Likewise, the government additionally payback $2 billion to Saudi Arabia during the current fiscal. Thus, the true net inflows further diminished to $0.98 billion in particular. It could be noticed that the support of budget helps the government span gap in financing and gives fiscal space to make essential uses. This space has assisted the government with improving its spending on community particularly wellbeing and social security and moderate the financial effect of the Coronavirus pandemic. The aftereffects of government’s policies, business strategy and different measures are likewise clear from 3.94% development rate which not just saved the factor of employment of millions of Pakistanis yet additionally worked on all major indicators of economics.
In 2020, the G20 and the Paris Club have agreed to postpone the payment of more debt to the world’s poorest countries, as clearing the coronavirus has affected the global economy. In June 2020, Pakistan was selected as one of the countries to find relief from debt repayment in an effort to reduce the financial debt to reduce the financial impact of coronavirus crisis. Despite the debt relief, external debt burden and the credit risk remain high. In any case the, access to the international financial markets has been severely curtailed, it is due to the fact that the Paris club has used “therapeutic comparison’ in private sector investment. In Pakistan the flow of the foreign loans may have a negative impact on the need for savings and the savings rate of the flow of Pakistani private sector remains low due to low real interest rates and lack of legal and secure investment opportunities. In addition, poor and low income people suffer from inflation.
The debt crisis in Pakistan has long been burden. The risk of non-payment of foreign debts began in 1996 near the end of the second Benazir government. Despite the importance between the understanding on debt problem and making a plan to deal with it, there was not much planned work on debt issues such as the nature of Pakistan debt crisis. Debt settlement will wreak havoc on Pakistan’s development as it faces the global economic stagnation and the emergence of productive growth opportunities through innovative technologies represented by the proliferation of computers, the rapid growth of the internet and the decline in the communications costs
Improving better policy and institutional strengthening in the various sectors involved in debt management. Large-scale economic development should be a focus on capital production, savings development, and individual investment and financial management, improved public and private productivity through better efficiency, better governance and reduction. Increased revenues and exports while eliminating current government spending in addition to profits and improving the use of state-owned enterprises.