Is Pakistan going the Sri Lanka way? Broad macroeconomic indicators for both countries point to similarities in the economic outlook of the two nations on the sub-continent. Pakistan may leverage its Nuclear Status as a Bargaining Chip.
Mired in political crisis, Sri Lanka is facing massive external debt crisis as well. It took loans to speed up its infrastructure and energy sectors, but failed to get the return on investment. As per the Central Bank of Sri Lanka data, for its $51 billion external debt and liabilities, it has to pay around $4.5 billion annually till 2025 as debt servicing (principal + interest) from its foreign exchange reserve.
The island nation is also heavily import-dependent, with around 40% difference between import and export figures. It basically means the country needs additional sufficient foreign exchange reserves to ensure supply of essential items from abroad.
With increasing debt servicing each year, coupled with drop in big foreign currency earners, tourism and remittances, Sri Lanka has less than $2 billion in its foreign currency reserve. In May, the country had just $50 million of usable foreign currency reserve that was not enough even to arrange imports for a day. The rapid economic decline saw Sri Lanka defaulting on the external debt in May.
Pakistan is facing a similar crisis. The country has massive external debt of around $130 billion. In FY21, as per State Bank of Pakistan (SBP) figures, the country paid $13.424 billion in debt servicing. For the three fiscal quarters of 2022, the amount has already crossed $10.885 billion and is expected to reach over $14 billion.
Like Sri Lanka, Pakistan is also an import-dependent economy but to add to the problems, the export-import gap is huge and the condition becomes even more precarious when there is an imminent crisis on the foreign exchange reserve front. The country’s forex reserve has reduced to just around $9 billion, enough only for six to seven weeks of import.
In fiscal year 2021, as per the State Bank of Pakistan figures, the country’s export was worth $25.639 billion while import was much higher at $54.273 billion, a huge gap of almost $30 billion. For fiscal year 2022, it was even higher at $40 billion dollars, with imports at $72.048 billion and exports at $32.450 billon. In June 2022, the country’s imports were worth $7.038 billion against an export figure of $3.118 billion.
SUPPORT FROM ISLAMIC COUNTRIES AND CHINA
Pakistan can also get support from other Islamic countries, says Jawad Nayyar, an economist, industrialist and techpreneur based in Pakistan, while emphasizing that the country will not go the Sri Lanka way. “Pakistan has certain geopolitical advantages that only a few others enjoy. These include cordial relationships with most of the MENA region, North Africa, and Asian and Far Eastern economies.”
Pakistan is the founding member of the Organization of Islamic Cooperation. The OIC has 57 countries as members spread across four continents. Pakistan being the second-largest state in the organization and, in fact, the only Islamic nation with nuclear power, can find support from within.
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