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Pakistan’s risk of defaulting on its debt ‘real’, warns US think-tank



  • Report says if Pakistan defaults, there will be a “cascade of disruptive effects”.
  • From April 2023 to June 2026, Pakistan needs to repay $77.5bn in external debt.
  • “Given Pakistan’s demographic profile, crisis could go in unexpected directions,” it states.

A Washington-based think tank, the United States Institute of Peace (USIP), has warned that there is “a real danger that Pakistan could default on debt”, which might further intensify political turmoil amid already surging terrorism.

The author of the analysis published on Thursday warned that amid skyrocketing inflation, political conflicts, and rising terrorism, the country is facing the risk of a default due to its massive external debt obligations.

The cash-strapped nation is reeling with the repercussions of a deepening political crisis — which initially began in April last year when former prime minister Imran Khan was ousted through a vote of no-confidence motion — and the derailment of the $6.5 billion International Monetary Fund (IMF) programme.

Islamabad has been hosting an IMF mission since late January to negotiate a series of policy measures to secure $1.1 billion in funding for the cash-strapped economy, which is on the verge of collapse.

The funds are part of a $6.5 billion bailout package the IMF approved in 2019, which analysts say is critical for Pakistan to avert defaulting on external payment obligations.

The deal will also unlock other bilateral and multilateral financing avenues for Pakistan to shore up its foreign exchange reserves, which have fallen to four weeks’ worth of import cover, and help it steer out of a balance of payment crisis.

The USIP report highlighted four factors that are important to consider if authorities want to pull Pakistan out of the economic abyss; these include:

  • Composition of Pakistan’s overall external debt
  • Repayment pressure on the debt in both short- and medium-term
  • Potential inflows that can offset debt outflows
  • Pakistan’s external debt management strategy

1. Debt composition

Pakistan holds external debt and liabilities worth $126.3 billion — as of December 2022 — out of this nearly 77% amounting to $97.5 billion is directly owned by the government to various creditors. Meanwhile an additional $7.9 billion is owned by government-controlled public sector enterprises to multilateral creditors.

It should be noted that Pakistan’s creditors fall under four broad categories:

  • Multilateral debt
  • Paris club debt
  • Private and commercial loans
  • Chinese debt

2. Short- and medium-term debt repayment pressure

The country’s large external debt comes with considerable repayment pressure. The US think tank report mentioned that from April 2023 to June 2026, Pakistan needs to repay $77.5 billion in external debt, which is a “hefty amount” for a $350 billion economy.

It should be noted that the major repayments in the next three years are to Chinese financial institutions, private creditors and Saudi Arabia.

The country faces near-term debt repayment pressure as the external debt servicing burden is $4.5 billion from April to June 2023.

The major repayments are due in June when a $1 billion Chinese SAFE deposit and a roughly $1.4 billion Chinese commercial loan would mature. Pakistani authorities hope to convince the Chinese to refinance and roll over both debts, something the Chinese government and commercial banks have done in the past.

However, even if Pakistan manages to meet these obligations, the next fiscal year will be more challenging, as the debt servicing will rise to nearly $25 billion. This includes:

1. $15 billion of short-term loans; which include:

  • $4 billion Chinese SAFE deposits
  • $3 billion Saudi deposits
  • $2 billion UAE deposits

2. $7 billion in long-term debt; which includes:

  • $1 billion repayment on a Eurobond in the fourth quarter
  • $1.1 billion of long-term commercial loans to Chinese banks

The report forecast that in 2024-25, Pakistan’s debt servicing is likely to be around $24.6 billion, which includes $8.2 billion in long-term debt repayments and another $14.5 billion in short-term debt repayments; this includes major repayments to Chinese lenders of $3.8 billion.

In 2025-26, the debt servicing burden is likely to be at least $23 billion; that year Pakistan is to pay back $8 billion in long-term debt, including repaying $1.8 billion for a Eurobond and $1.9 billion to Chinese commercial lender.

3. Repayment calculus

The US think tank suggested that in order to repay its debt and avoid a sovereign default, Pakistan’s earnings from exports, foreign direct investment (FDI) and remittances inflows are vital.

However, inflows from these three sources are projected to stay subdued compared to the import bill as well as the mounting debt repayment pressure.

Shipping containers are seen stacked on a ship at a sea port in Karachi on April 6, 2023. — AFP
Shipping containers are seen stacked on a ship at a sea port in Karachi on April 6, 2023. — AFP

Over the next three years, imports are likely to be higher than the total dollar amount of exports and remittances, which will lead to a current account deficit requiring external financing.

Meanwhile, FDI is projected to remain subdued as well. In recent years, investment has averaged a dismal $2 billion annually due to the challenging business environment and frequent policy changes; similar levels of investment are the best case for the next few years.

Investor sentiment has also been impacted by the government’s recent restrictions on the movement of capital outside the country.

4. Options to manage external debt

The report suggested that the economic managers of Pakistan has only two options to address its external debt burden. The first is to take fresh loans and seek rollovers of debt — however, the country’s ability to access the sovereign financing market is limited due to downgrades by international credit rating agencies.

Therefore, if the country seeks to avoid default the leadership will depend on Middle Eastern partners and China, not just for existing rollover but also fresh loans.

It should be noted that the details of these will depend on negotiations with the IMF. If the stalled IMF programme is revived, the amount will be smaller than the one it would seek if the programme collapses.

And in case the bailout programme is revived and completed over the summer, Pakistan will need a new IMF programme, in addition to new loans and rollovers from its Middle Eastern and Chinese partners, due to its external debt burden over the new three years.

The second option that the country has is that it seeks pre-emptive restructuring of debt as it will help reduce the repayment pressure and spare scarce dollars in the economy to finance the country’s current account deficit.

What will happen if Pakistan defaults?

The US think tank report mentioned that if Pakistan ultimately defaults, there will be a “cascade of disruptive effects”.

Primarily, the country’s imports could be disrupted, which could lead to a shortage of essential goods and commodities.

The nation of 220 million people, which is already seeing intense political conflict between the Pakistan Democratic Movement-led government and Pakistan Tehreek-e-Insaf (PTI), may also see the economic crisis creating more political turmoil.

“And given Pakistan’s demographic profile and surging terrorism threats, the resulting crisis could go in unexpected directions,” it stated.


Pakistan’s gold prices are still declining; see the most recent




The price of 10-gram gold reduced by Rs943 to settle at Rs207,733, while the price of gold dropped by Rs1200 to close at Rs242,300 a tola, according to the Sindh Sarafa Jewellers Association.

In the global market, the price of the precious metal fell by $10 to $2,349 per ounce, resulting in losses.

At 04:48 GMT, the spot price of gold had dropped by 0.2% to $2,354.77 per ounce. In the previous session, prices reached a two-week high.

American gold futures dropped 0.6% to $2,361.

Spot silver decreased by 0.4% to $28.03 per ounce, while palladium remained steady at $978.03 and platinum decreased by 0.1% to $992.89.

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Pakistan and the IMF begin talks for a new loan.




Pakistan is requesting a $6 to $8 billion bailout package from the international lender over the next three to four years to address its financial troubles.

A mission team led by Nathan Porter, the IMF’s Mission Chief in Pakistan, is meeting with a Pakistani delegation led by Finance Minister Muhammad Aurangzeb.

According to sources familiar with the situation, Islamabad may face more difficult options, such as raising power and gas bills.

Mr. Aurganzeb informed the IMF team that the country’s economy has improved as a result of the IMF loan package, and Islamabad is ready to sign a new loan programme to further develop.

The IMF mission expressed satisfaction with Islamabad’s efforts to revive the country’s struggling economy.

The IMF praised Pakistan’s economic growth in its staff report earlier this week, but warned that the outlook remains challenging, with very high downside risks.

The country nearly avoided collapse last summer, and its $350 billion economy has stabilized since the end of the last IMF program, with inflation falling to roughly 17% in April from a record high of 38% last May.

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Petrol prices are likely to drop significantly beginning May 16.




According to sources, the government is set to decrease petrol prices by Rs 14 per litre and diesel prices by Rs 10 on May 16 for the next fortnight’s revision.

Last month, the government reduced the price of fuel and high-speed diesel by Rs5.45 and Rs8.42 per fortnight, respectively.

The current fuel price is Rs288.49 per litre, while the HSD price is Rs281.96.

Meanwhile, oil prices fell further on Monday, as signs of sluggish fuel consumption and comments from U.S. Federal Reserve officials dimmed optimism for interest rate reduction, which may slow growth and reduce fuel demand in the world’s largest economy.

Brent crude prices down 25 cents, or 0.3%, to $82.54 a barrel, while US West Texas Intermediate crude futures fell 19 cents, or 0.2%, to $78.07 per barrel.

Oil prices also declined on signals of poor demand, according to ANZ analysts, as gasoline and distillate inventories in the United States increased in the week before the start of the driving season.

Refiners throughout the world are dealing with falling diesel profitability as new refineries increase supply and warm weather in the northern hemisphere and weak economic activity reduce demand.

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