Pakistan Reader# 576, 5 April 2023
Ankit Singh
On 5 April, The Express Tribune published an analysis ‘Why Pakistan would not default’ by Usama Umar “Why Pakistan would not default .” The author asserts the same when he says states may not have the capacity to repay debt commitments but having the willingness is sufficient to get loans rescheduled.
The following can be identified as three takeaways from the analysis.
First, the domestic narrative on default. On 4 April, the World Bank released its Pakistan Development Update which discusses macroeconomic developments and policy issues with regard to the country’s long-term economic development. Similar reports on Pakistan have focused on stabilizing and forecasting the mid-term outlook. The narrative does bode well for prospects of default by Pakistan. The print and digital media to has focused on highlighting the issues, their cyclical nature and external instability causing the current macroeconomic crisis. This indicates that the narrative is not on preparing for immediate uncertainties because of default but rather on gearing up for uncertainties over a longer term.
Second, the interpretation of data and statistics. According to Public Debt Bulletin published by Finance Division last week, the external debt was recorded at USD 86 billion at the end of December 2022, only 18 per cent (USD 15.48 billion) of the external debt is owed as commercial loans while multilateral debt was almost half of the total external debt. It is not just Pakistan which is going through a macroeconomic crisis right now. Short-term debt accounted for half of the increase in the total net external debt inflows for low- and middle-income countries in 2021, and yet still low-income countries are to reach the pre-pandemic levels in terms of public and publicly guaranteed external debt as a share of gross national income. As the author clarified that bilateral or multilateral loans can be rescheduled owing to the current crisis.
Third, geoeconomics. According to International Debt Report 2022 by the World Bank, payments scheduled for the next two years are likely to remain elevated for many poor countries and liquidity pressures have put 60 per cent of the poor and low-income countries, who are under Joint World Bank–International Monetary Fund Debt Sustainability Framework under debt distress. Pakistan is situated at one of the crossroads of the US and China rivalry and will likely reap easy benefits out of its crisis. As the author said strategic factor of Pakistan cannot be ignored, the youth bulge in Pakistan will supplement the leverage Pakistan will provide with its nearness to the world’s fastest-growing economy, China.
In conclusion, the supremacy of state sovereignty has been asserted by author yet there are differences among major stakeholders in manner of rescheduling of loans. China stock in bilateral service loans increased from 18 per cent to 49 per cent in 2022 for all low income countries. The uncertainty over Pakistan's default remains as Pakistan might float over current crisis or may be made an example to set new standards on debt transparency as mandated in the World Bank report.
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