WITH a third of the country — especially Sindh and Balochistan — under water, over 33m people displaced, and homes, roads, rail tracks, bridges, crops, livestock and livelihoods washed away, it is improbable that the economic targets set by the government for the present fiscal will be met. No wonder, the government has slashed its budgeted economic growth target from 5pc to just 2pc; the climate calamity has hit the country at a time when the economy was already in a tailspin as the government struggled with one of Pakistan’s worst balance-of-payments crises, piling debt and soaring inflation. Many believe that even the revised growth projections are too optimistic in light of the devastation wrought by a deluge of epic proportions that will leave the country with little or no growth at all this year. Hyperinflation, a weakening rupee, and fiscal and monetary tightening under the IMF package had already been affecting economic growth when the torrential monsoon rains and melting glaciers drowned large parts of the country. It, therefore, isn’t surprising to see the catastrophic floods curtail whatever modest growth we were expecting to achieve and push the nation to the brink. Finance Minister Miftah Ismail has rightly pointed out that “the path to solvency was narrow; it has gotten narrower”.
Early flood-related economic losses are estimated to be almost $30bn; the calls for debt relief for Pakistan are growing louder as Islamabad desperately looks towards the developed world to help it in a big way — and quickly. With a large number of affected people still awaiting rescue services and relief, and the rehabilitation and recovery phase yet to begin, UN Secretary General António Guterres has sought to draw global attention to the crisis in Pakistan, pointing out that the country was “drowning not only in floodwater, but also in debt”. A UN policy memo suggested that Islamabad should suspend international debt repayments and restructure loans with creditors after the recent floods exacerbated the financial crisis. It states that the country’s creditors should consider debt relief so that policymakers can prioritize financing its disaster response over loan repayment.
So far, the report has only spiked fears of a default as Pakistan’s sovereign bonds slumped to just half their face value, despite Mr Ismail’s statement a few days earlier that the country would “absolutely not default on its debt payments in spite of the floods” . The only silver lining is the indication from the IMF that it is willing to ease the conditions under the bailout program in a changed post-floods economic situation and increase the amount Pakistan would receive in the next tranche, subject to a “lot of negotiations” in the coming weeks. Chances are Pakistan will secure some additional multilateral financing. But that is not the solution to the current crisis. It’s time the world stepped forward to provide debt relief to prevent the economy from collapsing.
Published in Dawn, September 24th, 2022