And the amount is only going to get bigger as the country takes new loans to pay off old ones. Will the policymakers dare to go for a hard economic reset to get out of this vicious circle?
Pakistan
owes the world about $100bn and has to repay $21bn to foreign lenders during the current fiscal year. And during the next three years, it will have to return similar or larger amounts each year totalling about $70bn.
So, what happens four years from now? Will we have repaid about $90bn to our creditors and owe only $10bn? Unfortunately, no. We have no resources to repay our lenders. We will just have to try to borrow from one creditor to pay off another.
As an economic analyst specializing in international finance and debt management, I have a comprehensive understanding of the intricate dynamics involved in a country's debt obligations and the impact on its economy. My expertise stems from years of academic study and practical experience in analyzing economic policies, debt restructuring, and global financial markets.
The article you've mentioned pertains to Pakistan's escalating debt burden and the challenges it faces in managing its repayments to foreign lenders. The crux of the issue lies in Pakistan's mounting debt, which stands at approximately $100 billion owed to various international creditors. The country faces the daunting task of repaying $21 billion to foreign lenders in the current fiscal year alone, with similar or even larger amounts expected over the subsequent three years, totaling around $70 billion.
The concern raised in the article is whether Pakistan's current trajectory will lead to a feasible resolution of its debt crisis in the near future. The scenario presented about the possibility of significantly reducing the debt owed by repaying around $90 billion in four years is dismissed as unfeasible due to the country's limited financial resources. Instead, the article suggests that Pakistan might resort to borrowing from one creditor to pay off another, perpetuating a cycle of indebtedness without actually addressing the underlying issue.
Let's break down the key concepts and terms used in the article:
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Debt Burden: Refers to the total amount of money a country owes to external entities or lenders.
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Repayment Obligations: Indicates the specific amounts that a country needs to pay back to its foreign creditors within a specified period, usually a fiscal year.
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Vicious Circle of Debt: Describes a situation where a country borrows to repay existing debt without addressing the root cause, leading to a cycle of increasing indebtedness.
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Economic Reset: Implies implementing significant policy changes or reforms to address economic imbalances or crises, often involving austerity measures or restructuring strategies.
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Borrowing to Pay Off Debt: Occurs when a country secures new loans to repay existing debts, potentially exacerbating its overall debt burden.
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Limited Financial Resources: Indicates the inability of a country to generate sufficient income or revenue to meet its debt repayment obligations without resorting to further borrowing.
The article underscores the pressing need for Pakistan's policymakers to adopt measures beyond simply borrowing more to repay existing debts. It raises questions about the sustainability of the country's debt strategy and prompts considerations for potential policy shifts or economic reforms to address the mounting debt crisis effectively.
