Pakistan would be defaulted or not? This is the question around which the discussions revolve across the country. From talk shows to tables of tea everyone is discussing the defaulting situation being faced by the country. But, when it comes to the government of Pakistan then the ministers and other relevant authorities are busy in giving the satisfying statements by terming the defaulting situation as just a speculation. No one wants country to face default like situation. But, the reality cannot be rejected as it cannot be proven right for the country and nation. So, the ground reality is totally antithesis to that which is being told by the government representatives.
The International Monetary Fund describes default in simple terms as a broken promise or breach of contract. When a government borrows money from foreign and domestic creditors, it is contractually obliged to pay the interest on those loans. If a payment is missed, this is described as a default. Defaults happen when governments are not able to or don’t want to meet some or all of their debt payments to creditors. Weakening economies and “reckless spending” are among the factors that can lead to defaults. Countries can also face problems if they borrow in a currency other than their own. This means that, if their budget falls short, their central bank can’t print more money to fill the gap.
In case of developing countries like Pakistan, defaulting situation can be faced any time as these countries are often dependent on foreign loans. So, when they fail in fulfilling the agreement to payback the loan or imposed interest then they face defaulting situation. In the current situation, Pakistan is standing at the verge of default. Foreign currency reserves, which play key role in maintaining the balance of payments, are continuously coming down. Pakistan’s foreign exchange reserves held by the State Bank of Pakistan (SBP) plunged to $6.7 billion, official data showed Thursday, as the country struggles to meet external financing needs. In a statement, the central bank said the foreign currency reserves held by the SBP were recorded at $6,700 million as of December 9, down $15 million compared with $6,714.9 on December 2. The drop means the reserves have fallen further from last week’s barely one month of import cover, even as it battles decades of high inflation and scrambles to secure International Monetary Fund (IMF) funds. Overall liquid foreign currency reserves held by the country — including net reserves held by banks other than the SBP — stood at $12,570.2 million. Net reserves held by banks amounted to $5,870.2 million.
No country on earth defaults promptly. In fact there are a number of factors which contribute in this regard for a longer time and then the country reaches the point of devastation. Countries basically have a complicated economical structure. Their economy is exposed to a wide range of factors; from political risk including corruption index level, autocratic leadership; legal risks including how reliable their legal system is; to economic growth cycles that how dependent their growth on a service or export is and how productive their revenue system is. These all factors matter a lot in deciding the lines of economy. Due to the prolonged weaknesses in all these factors Pakistan is standing at the verge of default today. Government currently requires money to pay existing debts and to perform pension and social service commitments. But, the continuously decreasing foreign reserves have made things difficult for the government. Instead of giving satisfying statements government and all the other stakeholders should impose an economy emergency to deal with the situation. Otherwise, the day is not so far when Pakistan would become Sri Lanka which was defaulted recently and is now the most expensive country of Asia followed by Pakistan.
Published in Daily country news, December 16, 2022.
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