As the global economy bounces back from the challenges caused by the Covid pandemic and the Ukraine war, Pakistan’s economy continues to face significant difficulties. A recent report by the World Trade Organization (WTO) reveals that positive developments in global trade are being overshadowed by negative headlines. Surprisingly, despite escalating trade tensions between the United States and China since 2018, their bilateral trade reached record levels last year.
The report also highlights that trade-related concerns are evolving, with increased international cooperation and broader integration supporting trade, inclusiveness, and environmental sustainability. This indicates a trend towards re-globalization and a more positive outlook for global trade.
In contrast, Pakistan’s economy is sinking further into a crisis. Last month, the country’s interest payments skyrocketed to Rs. 537 billion, surpassing the federal government’s net income for the month by Rs. 156 billion, representing a 41% shortfall. This alarming increase in interest payments raises concerns that annual debt servicing costs may exceed budget allocations due to rising interest rates.
Pakistan’s debt situation is no longer sustainable, as the country is primarily borrowing to meet interest payments, leading to a growing debt burden. Just a year ago, the net income was sufficient to cover interest payments, but this is no longer the case.
Furthermore, the federal government has been forced to borrow Rs. 1.3 trillion at a high interest rate of 24.5% for three months. This market reluctance to lend money to the government is due to reports of a potential increase in the key policy rate to 25%, though the State Bank of Pakistan (SBP) denies these reports.
The federal government’s cash buffers are nearly Rs. 1.5 trillion less than what is needed for emergent needs, forcing the government to borrow heavily. While the government has allocated Rs. 7.3 trillion for debt servicing this fiscal year, it is expected that this figure may rise to Rs. 8 trillion.
Last fiscal year, the federal government exceeded its budget targets and failed to restrict fiscal operations in line with the International Monetary Fund (IMF) agreement, leading to a significant increase in public debt from Rs. 44 trillion in March 2022 to Rs. 61.8 trillion by July 2023. The government’s total expenditures also surged by 20% compared to the previous year, reaching Rs. 645 billion.
Another challenge for Pakistan’s financial decision-makers is Saudi Arabia’s reservations regarding investment protection and the repatriation of dividends. These concerns have prompted Pakistani authorities to conduct a comprehensive review of the situation and set tight deadlines for resolving issues related to the investment in the Reko Diq gold and copper mines. Saudi Arabia aims to make multibillion-dollar investments in various sectors, including mines, minerals, power, agriculture, and plasma products.
To address these challenges, the Special Investment Facilitation Council (SIFC) has been established to negotiate and oversee the Reko Diq project and facilitate new investments. The caretaker government is also under pressure to improve the country’s financial position, leading to a crackdown on power theft, which has resulted in the detection of eight million units of power theft and the recovery of a fine of Rs. 27.25 million.
In conclusion, while the global economy shows signs of recovery, Pakistan’s economy is facing severe challenges. The government must take immediate measures to address the mounting debt burden, attract investments, and improve financial management to ensure sustainable economic growth.