According to a renowned American think tank, Pakistan needs to repay USD 77.5 billion external debt to China and Saudi Arabia from April 2023 to June 2026.
If the cash-strapped government defaults on these payments, it could face disruptive consequences. Despite rising inflation, political disputes and rising terrorism, Pakistan faces the prospect of default due to its large foreign debt obligations, according to a research published by the United States Institute of Peace (USIP) on Friday.
The report said that Pakistan is on the brink of a serious economic crisis, with significant external debt, depreciating local currency and rapidly depleting foreign exchange reserves.
According to USIP research, Pakistan’s USD 77.5 billion external debt repayment from April 2023 to June 2026 is a “huge amount” for the USD 350 billion economy. It claimed that if Pakistan defaults, it will create a “cascade of disruptive effects”.
The report recommended that debt-ridden countries should make significant payments to Chinese financial institutions, private creditors and Saudi Arabia over the course of the next three years.
As per the analysis, Pakistan is facing near-term debt payment stress from April to June 2023, with an external debt repayment burden of USD 4.5 billion. In June, a Chinese secured deposit of USD 1 billion and Chinese commercial debt of around USD 1.4 billion will need to be repaid.
Sources claim that Pakistani officials are trying to persuade the Chinese to refinance and roll over both liabilities, citing past precedents in which the Chinese government and commercial banks have done so.
Even if Pakistan meets these obligations, the next financial year will be more difficult as the debt repayment amount will increase to more than US$25 billion according to the research.
Pakistan is still waiting for USD 1.1 billion in IMF aid, which was supposed to be disbursed in November of last year. Pakistan and the IMF have been negotiating for the resumption of the program for months but have been unable to reach an agreement.