Pakistan’s debt profile alarming, is at unsustainable levels, warns local think tank

An Islamabad-based think tank and advisory firm, Tabadlab, has issued a stark warning about Pakistan's debt situation, describing it as a "raging fire" that has become unsustainable, as per a Bloomberg report. This assessment is more severe than that of the International Monetary Fund (IMF), which had previously deemed the country's dues as "borderline" manageable, according to a 68-page report by Tabadlab.

The report, authored by Zeeshan Salahuddin and Ammar Habib Khan, highlights an "alarming" debt profile, predicting that Pakistan is heading towards an "inevitable default," which could trigger a detrimental economic spiral.

Also Read | China's central bank cuts benchmark lending rate for the first time since June

Tabadlab's report reveals a concerning trend in Pakistan's debt and liabilities. The external debt and liabilities have nearly doubled to $125 billion, and the domestic debt has surged sixfold in nominal terms since 2011. 

Interest payments as a percentage of the gross domestic product have reached an all-time high, according to the advisory firm, which caters to governments, development institutions, and businesses.

Economic Pessimism Surges Ahead of Election

A Gallup poll conducted before Pakistan's contentious election on February 8 reveals that economic pessimism among the country's voters has reached a record high.

Also Read | Indian economy a ‘bright spot’ while Japan, UK fall into technical recession: What this means for the global market?

The uncertainty surrounding the election has led to a decline in the nation's stock market. Shehbaz Sharif, the frontrunner for the next prime minister, emphasized the urgent need for a fresh IMF bailout, with the current nine-month program set to conclude in April.

Proposed Solution: Debt-for-Nature Swaps

To address the escalating debt issue, Tabadlab suggests exploring "debt-for-nature swaps," wherein a portion of the country's debt is exchanged for commitments to environmental conservation projects. Given Pakistan's vulnerability to climate disasters, such initiatives could provide a viable solution.

Also Read | India's forex reserves snap two-week rising streak, drop by $5.27 billion to reach $617.23 billion: RBI data

The nation experienced a contraction in the economy last fiscal year due to floods that affected about a third of the country, causing approximately $30 billion in damages and losses.

(With inputs from Bloomberg)