Is Pakistan next in line for bankruptcy as forex reserves depletes?

Pakistan may face a serious economic crisis as its foreign exchange reserves are depleting fast amid rising external debt servicing.

The country’s external debt servicing had escalated to $10.886 billion in the first three quarters of 2021-22 compared to $13.38 billion in the entire FY21. It was just $1.653 billion in 1QFY22 against $ 3.51 billion in the first quarter of 2020-21, but it rose to $4.357 billion in 2QFY22 and to $4.875 in 3QFY22.

According to the Dawn newspaper, Pakistan has been facing a serious threat from its external front as the State Bank of Pakistan’s foreign exchange reserve fell to single digits despite a $2.3 billion inflow from China last month.

“The increasing size of the external debt servicing in each quarter indicates the government has been borrowing dollars at higher commercial rates to meet its foreign debt repayment obligations,” the report said.

The present government led by Pakistan-Muslim-League-Nawaz (PMLN) did not release the rate at which it had borrowed $2.3 billion from China.

Beijing initially had agreed to roll over the syndicated loans before the ouster of the last PTI government. However, Pakistan’s prime minister, Shehbaz Sharif’s government had to wait for two months to secure the loan from China.

“The financial sector and other stakeholders of the economy are still not satisfied with the hidden cost of the Chinese loan. The market is full of speculation that Chinese loans were taken at a very high rate,” a source as per Swarajya.