Pakistan has a lot of debt. How bad is it?

Can the IMF save it?

The incoming government in Islamabad will have to hit the ground running as Pakistan’s economic challenges are persistent. The task of budgeting and managing finances is a complex puzzle that an average Pakistani household needs to solve every month. Presently, the government finances are in complete disarray; making matters worse, today the caretaker government announced a massive hike in gas prices. Specifically, natural gas has been hiked by nearly 67%, which is in line with demands made by the International Monetary Fund (IMF). The IMF has laid out some very specific instructions for Pakistan to remove subsidies while demanding restructuring of state enterprises and energy rationalization.

In Islamabad, Sharifs and Zardari have managed to cobble up a sort of coalition but it remains unclear whether this umbrella government will be able to tackle the great fiscal challenge at hand. It should be noted that the Pakistani caretaker government took charge last August gradually implementing IMF loan conditions which helped them keep bankruptcy at bay. The new administration’s task will be securing a new and much larger IMF bailout program lasting three years where they must execute various structural reforms.

At present, foreign exchange reserves stand at roughly $8 billion which is only enough for essential imports for two months. Furthermore, Pakistan’s debt-to-GDP ratio stands above 70% but after making interest payments on its debts it dips down to just 50%. Unfortunately, this is one of worst ratios for an economy Pakistan’s size globally due to tax hikes combined with increases in gas tariffs along with steep falls seen within their currency leading inflation rates skyrocketing year-on-year close to 30%. Experts now anticipate further drops within Pakistani rupee value.

The question becomes whether or not this new government has any plans whatsoever regarding getting their economy back on track? One can only hope so since previous governments led by Shabah Sharif and caretaker governments were disastrous — people were crushed under inflation while petrol prices remained high despite decreases internationally; electricity and gas prices increased relentlessly without relief provided for citizens’ suffering from these costs.