CIPEP Aliza
CIPEP Aliza
CIPEP Aliza
In vulnerable economies, a small political shake-up can disturb a country’s entire dynamics,
slowing down the pace of economic activity, creating a sense of insecurity in the financial
sector, and diverting the nation’s progress toward economic security. All of this can result in
another set of problems.
This is exactly what happened in Pakistan when the coalition government came into power
corridors. The coalition government faces mountainous issues: skyrocketing inflation,
massive devaluation of the Pakistani rupee against major world currencies, increasing fuel
prices, and the drying up of foreign currency reserves.
Surrounding all of these challenges is the fear of a debt default. Default on sovereign debt is
a difficult situation for any country and its donors, but it is very much part of the global
economic system, and there have been some countries that have defaulted on sovereign debt
in recent years, as mentioned above.
In Pakistan, however, it has been politicized and raised to such a level of concern and debate
that it sounds like the Holocaust. According to one school of thought, default by Pakistan at
this stage may actually lead to better fiscal discipline and more responsible economic
governance, while the other side of this debate is portraying the potential default in a very
bleak manner.
Now if we were to ask whether our country has defaulted the answer would be no but
Pakistan is on the brink of default and/or at least in the danger zone as inflation is rising, the
dollar getting stronger, cost of borrowing mounting and global growth decelerating. Several
international financial institutions and economists are raising the alarm about the catastrophic
debt crisis of Pakistan. The political instability, complicated domestic policies, and a difficult
external environment have pushed the country to a challenging economic juncture. We have
discussed the deteriorating economic conditions of Pakistan but there are certain aspects that
make us hopeful that we might survive the enduring threat
Major macroeconomic indicators are comparatively better than previously
defaulted states
Indicators Ghana Sri Lanka Pakistan
Default Period Dec 2022 Apr 2022 _
GDP USD’bn 77 87 377
External Debt to 37.0 37.0 31.0
GDP %
Fiscal deficit % -7.4 -11.6 -7.9
of GDP
Inflation YOY % 50.3 18.7 12.1
GDP growth % 4.1 -8.4 6.0
Due to the aforementioned reasons, Pakistan’s default on its sovereign debt may be avoided or
delayed in the current year, i.e., 2023. It is neither a time to be complacent nor is such a situation
favorable. A patient in a coma or in the ICU is more of a concern than any other situation.
Must Read
https://www.moneycontrol.com/news/world/in-depth-what-pushed-pakistan-to-the-brink-of-
economic-collapse-why-it-concerns-india-9955201.html
https://tribune.com.pk/story/2396605/the-blessings-of-a-looming-default
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