With a third of the country – particularly Sindh and Balochistan – under water, over 33 million people displaced and homes, roads, rails, bridges, crops, livestock and livelihoods washed away, it is unlikely to meet the economic targets set by the government the present tax will be met. No wonder the government has cut its estimated economic growth target from 5 percent to just 2 percent; The climate catastrophe hit the country at a time when the economy was already in a tailspin, when the government was grappling with one of Pakistan’s worst balance of payments crises, piling on debt and soaring inflation. Many believe that even the revised growth forecasts are overly optimistic given the devastation wrought by a deluge of epic proportions that will leave the country with little or no growth this year. Hyperinflation, a flagging rupee and fiscal and monetary tightening as part of the IMF package had already hampered economic growth as torrential monsoon rains and melting glaciers drowned much of the country. It is not surprising, then, that the catastrophic floods are quashing the modest growth we expected and pushing the nation to the brink of collapse. Finance Minister Miftah Ismail rightly pointed out that “the road to solvency was narrow; it has gotten narrower”.
Economic losses associated with early floods are estimated at nearly $30 billion; Calls for debt relief for Pakistan are growing louder as Islamabad looks desperately to the developed world for big – and quick – help. With a large number of affected people still awaiting emergency services and assistance, and the rehabilitation and recovery phase has not yet started, UN Secretary-General António Guterres has attempted to draw global attention to the crisis in Pakistan by pointing out pointed out that the country “is not only drowning in floods, but also in debt”. A United Nations policy memo suggested that Islamabad should suspend international debt repayments and restructure loans with creditors after recent floods exacerbated the financial crisis. It said the country’s creditors should consider debt relief so policymakers can prioritize funding for disaster relief over loan repayments.
So far, the report has only fueled fears of a default as Pakistan’s government bonds have fallen to just half their face value, despite Mr Ismail’s statement a few days earlier that the country “would absolutely not default on its debt payments despite the floods”. . . The only bright spot is the IMF’s indication that it is willing to ease terms under the bailout program in a changed economic climate after the floods and increase the amount Pakistan would receive in the next tranche, subject to “a lot of negotiation”. In the coming weeks. There is a good chance that Pakistan will secure additional multilateral financing. But that is not the solution to the current crisis. It is time for the world to step up to provide debt relief to prevent the economy from collapsing.
Published in Dawn, September 24, 2022