Pakistan rapidly heading towards severe debt trap: economists

Say country’s external debt to swell up to $110 billion till 2020;

no option but to go back to IMF to avoid default

ISLAMABAD: Renowned economists have predicted that Pakistan is rapidly heading towards severe debt trap as the country’s external debt is projected to swell up to $110 billion till 2020, posing threatening situation having no option but to go back to the IMF to avoid default.

Pakistan has recently said goodbye to the IMF after successful completion of 36 months Extended Fund Facility (EFF) but the doomsday scenario presented by renowned economists must cause alarm bells among the dwellers of Q Block (Finance Ministry) because their projection were mainly based upon stagnant exports which would continue hovering around $25 billion by 2020. With increasing exports and maintaining reasonable pace of remittances, Pakistan can avoid its woes on front of external accounts.

This prediction has been made by former Director General Debt Office Ministry of Finance Dr Ashfaque Hassan Khan while addressing at the National Debt Conference organised by Policy Research Institute of Market Economy (PRIME), a think tank, here on Saturday.

Two reputed economists including former Finance Minister Dr Hafiz Pasha and former DG Debt Dr Ashfaque Hasan Khan made these projections on rising external debt. The projected amount of $110 billion as external debt will be even higher by $24 billion than the projection made by the IMF in its latest review report on Pakistan economy.

Due to low level of exports, Pakistan’s external debt to export ratio has been projected at 441.8% by 2019-20, which is highly unsustainable. He projected that the country would consume 40% of its export earnings just to service the external debt by 2020.

By 2019-20, Dr Ashfaque said that amortization payments would increase to $10 billion. To fill the current account deficit the country will require another $12.5 billion a year, increasing Pakistan’s total external financing requirements to $22.5 billion. The current account deficit will be widened due to import of machinery and plants for CPEC projects.

After exhausting all available resources including CPEC financing, foreign investment and traditional donors, there will be still $11 billion financing gap, which the country would not be able to meet without the IMF help, said Dr Khan.

He predicted that Pakistan will return to the IMF in fiscal year 2018-19 –the year when the country’s external debt will be $98 billion and its financing gap will be $9 billion. “Pakistan’s debt situation is deteriorating rapidly and posing serious threat to its solvency”, said former DG Debt.

Dr Ashfaque Hasan Khan said the governments of the PML-N and PPP added $49 billion into total $73 billion external debt. The majority of this amount $32.6 billion was added from 2008 to 2016 while the remaining amount of $17.4 billion was added during the 1990s decade.

“We need to develop a more effective borrowing strategy, which should be consistent with the country’s development priorities, said Dr Khan. The commercial borrowings were 25% of the external debt, which was a matter of concern, said Shahid Kardar, former Governor State Bank of Pakistan. The low returns on the country’s foreign currency reserves compared with the borrowings cost was another matter of concern, he added.

Pakistan can keep its debt at sustainable level by achieving about 6% annual economic growth rate, said Dr Ali Kemal –a research economist at Pakistan Institute of Development Economics (PIDE). He said that despite increase in debt levels, Pakistan is still not Greece.

“We are at comfortable stage and there is no need to worry about anything”, said Zafar Masud, Director General of Central Directorate of National Savings (CDNS) while speaking at the conference.

“Pakistan is fast slipping into debt trap and neither the government nor the Parliament is playing its due role”, said Asad Umer, Member National Assembly of Pakistan Tahreek-e-Insaf while speaking at the conference.