Pakistan is among those many developing countries that have been under serious debt distress in the wake of the recession-causing covid-19 pandemic. In this regard, a May 30 Bloomberg-published article ‘IMF asks Pakistan to fix currency market before bailout resumes’ pointed out ‘Pakistan is stepping up efforts to secure funding as it teeters on the edge of a sovereign default. The South Asian nation faces about $22 billion of external debt service for fiscal year 2024, which begins in July, according to Columbia Threadneedle Investments, which is about five times its reserves.’
In addition, years of lack of deep non-neoliberal economic reform, along with practice of procyclical, austerity policies overall for a number of years, but acute application of monetary- and fiscal austerity policies under the current International Monetary Fund (IMF) programme, especially during the last year or so, has resulted in weakening of further debt repayment capacity, as foreign exchange reserves received a lot lesser than projected support from exports, and deep dip in economic growth.
Moreover, lack of any meaningful debt relief effort, along with little effort to improve an otherwise lacklustre debt restructuring framework, under an overall weak spirit of multilateralism, which is indeed ironic given the fast-unfolding existential threat of climate change crisis, and in the wake of the pandemic, required a lot more unified effort globally to effectively fight these challenges.
Moreover, climate-related disasters are also adding to the already high debt burden. For instance, in the case of Pakistan, last years’ catastrophic floods created immense loss to life and livelihood. A recently released report ‘Global Report on Food Crises (GRFC) 2023’ by ‘FSIN and Global Network Against Food Crises’ pointed out in this regard ‘In Pakistan, severe flooding in June and August 2022 affected the livelihoods of approximately 33 million people, especially in southern areas. …In Pakistan, unprecedented floods between June and October temporarily displaced over 8 million people. Although most of the affected populations were able to return to their homes after the flooding receded, 89 000 were still displaced as of December 2022.’
A recent Financial Times (FT)-published article ‘Africa needs international help to avoid a lost decade’ indicated in this regard ‘African countries are facing a cost of living crisis, tightening global liquidity and worsening climate shocks. All of this is intensified by unsustainable debt burdens, which have been deepened by the devaluation of local currencies against the dollar and the US Federal Reserve’s interest rate hikes. …This is unfair. African countries have been buffeted by shocks that they did not create, yet they have limited involvement in the multilateral decisions that affect them. A succession of international moments in the past two years – G20 and G7 Summits, IMF and World Bank meetings – could have provided opportunities to change this dynamic but largely failed to do so.’
Moreover, the country has been suffering from food shortages since 2017. The same ‘FSIN and Global Network Against Food Crises’ published report highlighted the serious food shortage in Pakistan, made all the more acute in the wake of last years’ floods as ‘The widespread loss of livelihoods compounded an already dire food security situation at the national level. …Pakistan has been defined as a ‘major’ food crisis since 2017 when over 50 percent of its analysed population was in IPC [Integrated Food Security Phase Classification] Phase 3 or above. …Even before Pakistan was hit by the devastating monsoon floods in mid-June and the end of August, heatwaves in March and April, in conjunction with fertilizer shortages and lack of irrigation water, had affected ‘Rabi’ wheat crop yields and lowered livestock production in most of the analysed districts.’
There is also a need for meaningful debt relief, greater allocation of IMF’s special drawing rights (SDRs), and climate finance for developing countries.
In this regard, on the one hand, the upcoming Budget needs to give special expenditure focus in the areas of climate change crisis, public health sector (especially to be better prepared for a likely another pandemic), and flood related disaster from last year. A recent Bloomberg published article ‘Debt crisis looms for poorer nations most vulnerable to climate change’ highlighted the need for much better multilateral spirit, in support of debt related challenges created by climate disasters. The article pointed out ‘Pakistani Prime Minister Shehbaz Sharif warned world leaders at the COP27 climate talks last November that developing nations risk falling into a “financial debt trap” if they’re forced to turn to the markets to cover the mounting costs of climate change. Six months on, with rates and temperatures rising, his prediction looks prescient.’
On the other hand, there is also a need for meaningful debt relief, greater allocation of IMF’s special drawing rights (SDRs), and climate finance for developing countries. A recent Project Syndicate (PS) published article ‘A world of debt’ pointed out in this regard ‘Egypt, Ghana, Pakistan, and many other countries are in grave financial difficulties. …The International Monetary Fund counts 41 countries as being heavily indebted, and that does not include middle-income countries such as Argentina, Pakistan, and Sri Lanka. …the question for poorer countries is whether, or how much, they can repay. Many heavily indebted low-income countries have debt levels that are already unsustainable or will be soon. Some have missed payments or announced that they will have to suspend debt service. Private lenders have responded by refusing to lend more.’