Pakistan's debt crisis has reached alarming levels, with interest payments on loans exceeding the government's income by a staggering Rs 205 billion in just nine months.
The country's total debt and liabilities have ballooned to over Rs80,086 billion, according to the State Bank's statistics.
As negotiations with the International Monetary Fund (IMF) for a new bailout package continue, the government is under pressure to reduce its expenditure and bring down the debt ratio.
The international money lender has described the heavy interest payments on loans as a burden on the economy and demanded a reduction in government spending.
The Ministry of Finance has revealed that the target for paying interest on loans for the current financial year was Rs7,303 billion, but in the first nine months, the interest bill reached Rs 5,518 billion, exceeding the government's net income of Rs 5,313 billion.
The joint estimate of the IMF and the Ministry of Finance is that the interest bill on loans will reach Rs 9,787 billion in the next financial year, a daunting task for the government to manage.
To make matters worse, Pakistan is also seeking a five-year extension in the repayment of Chinese loans worth $15.3 billion, which were obtained for 21 power generation projects through Independent Power Producers (IPPs). If granted, this extension will add an additional Rs 377 billion to the country's debt burden.
The government has assured the IMF of debt reduction through expenditure control, a expected reduction in the current policy rate of 22 percent, and revenue growth. As a result, the debt ratio is expected to come down to 70 percent from 72.1 percent in the next financial year.
However, the road ahead is challenging, and the government will have to take tough decisions to manage the debt crisis. The IMF has emphasized that Pakistan's debt sustainability depends on policy continuity, and the government will have to ensure that it sticks to its commitments to reduce the debt burden.
The upcoming visit of the Prime Minister to China may bring some relief, as Pakistan is likely to make progress on the extension of Chinese loans. However, the country will have to take a long-term view to manage its debt crisis and ensure economic stability.
