WORLD NEWS | Specter of potential default hangs over Pakistan’s economy: Report

Islamabad [Pakistan]May 21 (ANI): The specter of a potential default hangs over Pakistan’s already fragile economy as prospects for a recovery in the International Monetary Fund’s (IMF) lending program dim, the Express Tribune reported.

According to news reports, the consequences of a default on the Pakistani economy would be dire, including hyperinflation, a depreciation of the Pakistani rupee, a virtual halt to imports, more factory closures, rising unemployment, and political and social unrest.

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According to the Tribune, economic signs have deteriorated, suggesting that the crisis facing Pakistan is deepening. The local financial system, especially commercial banks, will face headwinds as they have provided funds to the Pakistani government in recent years.

Amid the economic crisis, Pakistan has expressed hope for support from friendly countries such as China, Saudi Arabia and the UAE. A report titled “Pakistan’s Economy: What if Pakistan Defaults?” by Sana Tawfik, an economist at Arif Habib Limited (AHL) Research, said that, according to news reports, Pakistan’s The risk of default has increased significantly.

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Moody’s Investors Service predicts that Pakistan, without an IMF program, will default on its debt after June 2023, according to news reports. According to reports, Pakistan’s foreign exchange reserves currently stand at $4.3 billion and the country faces massive debt repayments until June 2024.

In order to meet the external debt repayment needs of US$27 billion in FY24, Pakistan still faces a funding gap of US$5 billion. According to the Tribune, Pakistan’s external debt service needs total $73 billion in FY24-27.

Sovereign defaults typically lead to a contraction in gross domestic product (GDP). Sri Lanka’s GDP contracted by 7.8% following a default in 2022. The State Bank of Pakistan (SBP) has announced that economic growth will be lower than previously expected, according to Tribune Express.

According to some local research institutes, Pakistan will face an economic contraction before a possible default occurs. A default would make it difficult for Pakistan to import essential goods such as oil, machinery and pharmaceutical products, according to news reports.

Unemployment is likely to increase, triggering social unrest, and shortages of essential items will further aggravate the difficulties faced by the Pakistani people, according to Tribune Express. A post-default scenario would require a massive debt restructuring in Pakistan, given the huge debt servicing needs in the coming years.

Following the example of Sri Lanka, Pakistan will be called upon to negotiate a restructuring plan with China, other bilateral creditors and the Paris Club. Pakistan will then need to implement a new IMF long-term program to achieve macroeconomic stability. (Arnie)

(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)