SANJAY KATHURIA
In July, Pakistan reached a staff-level agreement with the International Monetary Fund on a record 25th program, in yet another attempt to kick-start economic growth and development as the country lurches from crisis to crisis. But the new IMF program, which will likely be finalized once Pakistan secures “adequate” assurances from major creditors that its outstanding loans will be rolled over, fails to address a much more fundamental problem: the country’s unsustainable debt.
Interest payments on public debt consumed an estimated 68% of Pakistan’s revenue in the 2022-23 fiscal year, and its debt-to-GDP ratio was more than 80%, compared to less than 40% in Bangladesh, which gained independence from Pakistan in 1971. The IMF estimates the country’s total external-financing needs will total roughly $128 billion over the next five years, with every year’s needs exceeding even optimistic forecasts of its foreign reserves. To restore debt sustainability, Pakistan would need to restructure its internal and external obligations, as Sri Lanka is currently doing.
Pakistan’s deep-seated problems, including entrenched business elites, a persistent democracy deficit, and the military’s outsize economic role, have undermined market credibility, investment, and GDP growth. High levels of non-transparent protection have resulted in stagnant exports – $35.2 billion in 2023, compared to Bangladesh’s $57.6 billion – and recurrent foreign-exchange crises. Investment spending amounted to only 12% of GDP in 2023, compared to 31% in Bangladesh and neighboring India, and GDP per capita was 56% of Bangladesh’s.
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