Economic crisis in Pakistan: Pakistan’s economic situation continues to deteriorate due to “high debt”

Pakistan is one of fifty-two countries facing a severe debt crisis and the repayment and servicing of external debt is among the most serious problems facing the country.

According to Islam Khabar,

borrowing creates a spiral with more borrowing leading to an impending economic crisis.

Evidence supports the view that much public debt has a negative impact on the potential for economic growth, and in many cases the impact becomes more pronounced as debt increases.

Reports indicate that the high degree of indebtedness has made Pakistan more vulnerable to economic shocks and weakened it politically vis-à-vis external lenders.

With an external public debt of over $90 billion, Pakistan is clearly on the brink of economic disaster.

Citing data from the Ministry of Economic Affairs, Islama Khabar said Pakistan had added net $4.77 billion in the first half (July-December 2021) of the current fiscal year to its total external public debt of 90.6 billions of dollars.

Therefore, the reserves of the

of Pakistan (SBP) fell to 10.308 billion USD, a decrease of 190 million USD. Foreign debt repayments led to a rapid decline in reserves.

According to official figures, the reserves currently available to the SBP can only cover imports for about 1.54 months.

In addition, the decline in foreign exchange reserves is the result of inflation from Pakistan’s twin deficits, a lack of foreign exchange inflows and a sharp increase in external debt service obligations, further reported Islam Khabar.

Notably, the government of Shehbaz Sharif raised petrol and diesel prices by PKR 30 per litre, causing production costs to soar in the country.

This price hike came after talks between the Pakistani government and the IMF in Doha. The talks were aimed at reaching an agreement on policies following the IMF’s seventh review of its $6 billion programs for Pakistan, stalled since early April.

The IMF had refused to relaunch the $6 billion program if Pakistan failed to remove fiscally unsustainable fuel and electricity subsidies. He had given Islamabad two days to lift the ceiling on further talks.

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