Burden of new loans and rising interest: Will Pakistan be able to get out of the debt swamp?

The latest report from the Economic Affairs Division is a moment of reflection for the government of Pakistan and economic institutions. According to the document, the interest burden on Pakistan’s external loans has increased by 84 percent in the last three years, which is a dangerous sign for any developing country. Compared to the level at which interest payments were in 2022, there has now been an additional burden of $1.67 billion, bringing the total interest amount to $3.59 billion annually. These figures show that rising interest rates globally have broken the backs of indebted countries like Pakistan.

According to the document, Pakistan paid huge interest to commercial banks besides the IMF, World Bank, and Asian Development Bank. The interest collection on safe deposits of Saudi Arabia and China is also evidence that the cost of supporting foreign exchange reserves has now increased significantly. Pakistan repaid $9.73 billion in the last three years, but on the contrary, net external debt increased by $1.71 billion. The main reason for this is the new agreements worth $10.64 billion that were signed in the last fiscal year to keep the country running.

The total annual payments of $13.32 billion eat up a large part of Pakistan’s total budget. Unless the country’s sources of dollar inflows, such as exports and remittances, increase significantly, this mania of interest payments will not be brought under control. Experts suggest that the government should hold serious negotiations with international institutions for debt restructuring so that the economy can breathe and the public can get some relief from the burden of inflation.