Sri Lanka faces liquidity crunch, Pakistan stares at economic abyss | World News

Although Sri Lanka received its first loan of US$362 million from the International Monetary Fund, the island nation is still facing a liquidity crunch as the terms of the loan stipulate no printing of Sri Lankan currency to curb inflation and prudent fiscal management. On March 20, the IMF provided Sri Lanka with a $2.9 billion package in eight tranches.

It is understood that Sri Lanka has repaid nearly half of the US$500 million loan used to buy fuel last year, showing that donor countries including China, Japan and even India will have to significantly reduce debt restructuring. island country.

While Sri Lanka continues to grapple with an ongoing economic crisis after defaulting on May 20, 2022, another Indian neighbor on the subcontinent and China’s cat’s paw, Pakistan, is eyeing a default, with reports that Islamabad will have to cough 2023 Between April and June 2026, Iron Brothers China, private creditors and Saudi Arabia have external debt of $77.5 billion. Foreign debt accounts for a quarter of Pakistan’s $350 billion economy.

Pakistan is facing a severe economic and political crisis, with Balochistan and Khyber -Insurgency intensifies in Pakhtunkhwa area. Islamabad faces a crisis as ousted prime minister and PTI chief Imran Khan fights to bring the Pakistani establishment back to power, the judiciary is divided, and Prime Minister Sheikh Baz Sharif faces public anger over food shortages and rampant inflation. In a full-blown crisis, the world is watching about Russia’s actions in Ukraine and China’s actions in Taiwan. The political cost of economic pain to the public will lead to further public disillusionment with politicians and Rawalpindi GHQ, as the IMF package will come with strings attached to tax hikes and rationalization of electricity prices.

Pakistan’s foreign exchange reserves have fallen to $4.2 billion, enough to cover a month’s worth of imports. With the exchange rate of the US dollar against the Pakistani rupee approaching 280 Pakistani rupee to the US dollar, food shortages have occurred in all provinces except the core state of Pakistan, Punjab.

According to a report this week by the U.S. Institute of Peace, the Islamic Republic holds $126.3 billion in foreign debt and liabilities as of December 2022. Nearly 77 percent of this debt, or $97.5 billion, is owed directly by the Islamic Republic. The Government of Pakistan to various creditors and another $7.9 billion to multilateral creditors from government-controlled public sector enterprises.

Pakistan owes US$45 billion to multilateral institutions, US$8.5 billion to the Paris Club of creditor countries, US$27 billion to China, and about US$7.8 billion in private debt and commercial loans. While Islamabad believes that iron fraternal China and Sunni Islamic countries will not let Pakistan default on refinancing loans, the repayment pressure on the Islamic Republic will reach $24.6 billion in 2024-2025.

Given that Pakistan has effectively entered the Sino-Russian axis and relies on Beijing for military equipment, the West is indifferent to the plight of the Islamic Republic in its efforts to contain China’s rise after its withdrawal from Afghanistan. Calling Pakistan a lackey of China doesn’t really help its case.