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Reforming Economy Under IMF Program Will Lower Pakistan’s Default Risk

Pakistan’s strategy to reform the economy under the International Monetary Fund program will most likely prevent it from going into default.

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IMF Program
IMF Program

Pakistan’s strategy to handle the pandemic crisis, better level of foreign exchange earnings, and reforming the economy under the International Monetary Fund (IMF) program will most likely prevent it from going into default.

According to the report “Is Pakistan Closer to Sri Lanka – A Comparative Analysis” released by the Ministry of Economic Affairs, the government is cognizant of the default risk and initiated appropriate measures like taxing the wealthy, reducing subsidies, and re-adjusting the fuel, electricity, and gas prices to reduce the burden on the exchequer, it added.

The report noted that Sri Lanka defaulted on its debt obligations to its creditors in May 2022 when it failed to repay $78 million of debt interest even after availing of a 30-day grace period.

The foreign exchange earnings of Sri Lanka reveal that the country experienced an overall 29 percent decrease in foreign exchange earnings in 2021 as compared to those in 2019.

This decrease occurred as a result of a substantial decline in tourism (86 percent), and remittances (18 percent).

The foreign exchange reserves were recorded at $1.7 billion as of 30th June 2022 which included $1.5 billion in a swap facility provided by the People’s Bank of China. Consequently, the credit rating companies declared Sri Lanka as a defaulted country.

On the other side, the economic and political uncertainty in Pakistan is giving an impression globally that Pakistan might be following the footprints of Sri Lanka.

However, due to relatively better economic management of the government, particularly during the pandemic and post-pandemic periods as well as during the prevailing global commodity crisis, Pakistan’s economy has shown a great level of resilience.

 

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