Pakistan’s debt crisis needs urgent action: Report

February 19, 2024 (MLN): Pakistan’s debt is a formidable, existential, and pertinent challenge, that requires immediate and strategic interventions, a local advisory firm and think tank Tabadlab warned in a latest report published on Sunday.

Detailed in Tabadlab’s seminal analysis, “A Raging Fire,” the think tank said that the gravity of this crisis is laid bare, revealing the depth and breadth of the problem, the quantum of financial resources lacking, and the path forward with or without transformational structural changes.

The country’s external debt and liabilities have almost doubled to $125 billion while its domestic debt has surged 6x since 2011 in PKR terms, according to the Tabadlab report’s authors Zeeshan Salahuddin and Ammar Habib Khan.

Pakistan’s debt per capita has grown from $823 in 2011 to $1,122 in 2023, an increase of 36%.

In the same period, the nation’s GDP per capita has declined from $1,295 in 2011 to $1,223 in 2023, a 6% decrease.

This means that Pakistan's debt is growing at a much faster rate than its income, widening the financing gap, necessitating further borrowing, the report highlighted.

Another way to think about it is that a child in 2011 had a debt of Rs70,778 at birth. However, a child in 2023 has a debt of Rs321,341. This is a 4.5x increase.

The quantum of debt Pakistan requires is growing faster than the net output of the economy (GDP). This means that the economy's ability to grow or increase output is constrained.

Such a scenario is clearly unsustainable and calls for transformative change, the advisory firm said.

By dissecting key financial indicators, drawing comparisons with global standards, and showcasing multi-scenario projections “A Raging Fire” serves as a critical blueprint for navigating Pakistan’s debt dilemma.

Providing comprehensive solutions in a dedicated section, the analysis ended with proposing crucial reforms needed to extricate Pakistan from this perennial financial spiral, and put it on a path to economic recovery, eventually leading to prosperity.

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