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Eye on Asia | Political pressure is crippling efforts to stave off an economic crisis in Pakistan. Will it become the next Sri Lanka?
- Political stability is central to getting Pakistan’s economy back on track with IMF assistance and avoiding a debt default
- Ousted prime minister Imran Khan is pushing for early national elections as he taps into growing public anger amid soaring prices and acute shortages of fuel, food and other essentials
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Pakistan currently sits at No 4 in Bloomberg’s Sovereign Debt Vulnerability Ranking, a composite measure of a country’s default risk. The county’s debt stands at 71.3 per cent of GDP. Will Pakistan be the next Sri Lanka?
While the alarming economic numbers increase Pakistan’s chances of a default, the fractious political environment following the ousting of former prime minister Imran Khan in April has further increased the risk. Political stability is key to Pakistan’s economic agenda, even if it is dictated by the International Monetary Fund (IMF) with harsh conditions.
A coalition government – comprising a dozen disparate parties with conflicting political and economic objectives, and enjoying a thin majority in parliament – is tasked with handling the daunting economic challenges.
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Can a weak government handle the economic crisis being exacerbated by the effects of the war in Ukraine, amid a wave of potential defaults? Hence, Pakistan’s real default risk lies on the political rather than economic front.
The crisis afflicting Sri Lanka, which in April defaulted on its US$51 billion foreign debt, is instructive. The storming of Sri Lanka’s presidential palace by anti-government protesters reflected the public frustration with the government’s failure to halt the economic meltdown that has triggered acute shortages of fuel, food and other essentials.
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Millions of Sri Lankans go hungry as food prices soar
Millions of Sri Lankans go hungry as food prices soar
In Pakistan, too, the nation’s debt burden is rising. Foreign exchange reserves are being depleted as the rupee slides against the US dollar, the current account deficit is widening and fuel and commodity prices are skyrocketing amid rising political temperatures. In the coming months, the country faces growing economic turmoil and a deepening political crisis.
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