Will Pakistan Ever Be Able to Pay Back Its Loans?

The entire world knows that Pakistan economy is in the doldrums. Pakistan has been forced to borrow money 16 times from the IMF in the past 30 years! Right now, analysts are predicting that Pakistan urgently needs $28 billion in order to meet its financing needs. The only hope to be able to accumulate money is to obtain another loan from the IMF! If Pakistan is not able to arrange a loan, it is heading for bankruptcy. This is the reason why President Imran Khan has decided to pursue the IMF loan even though personally he has been against accepting this funding. But the question isn’t really about whether Pakistan will be able to arrange loans in the short term. It is almost certain that one way or the other, they will be able to arrange funds now. However, the bigger question really is about the repayment.

The Pakistani government already owes close to $90 billion. IMF is aware of the fact that they are making risky loans. This is the reason why IMF is looking to raise the interest rates. Earlier, loans to Pakistan were made at an interest rate of 8.5%. Now, the interest rates being quoted are close to 12% which is a 50% increase from the previous rates. If Pakistan does not find a way to put its economic house in order, the interest rates and bond yields could rise even further. The end result of all this could be an economic catastrophe.

In this article, we will enumerate some of the steps that Pakistan will have to take in order to be able to repay its loans.

Stop Going Further Into Debt

There is an old saying in personal finance. It says that “when you find yourself in a hole, the first thing you should do is stop digging.” This is the kinds of advice that Pakistan needs to follow. At the present moment, Pakistan is facing a debt crisis of epic proportions. However, on the other hand, it also seems to be involved in some very ambitious projects. Many economic analysts have been critical about the China Pakistan Economic Corridor. They firmly believe that this economic corridor is more beneficial to China than it is to Pakistan. It is for this reason that Pakistan must at least slow down their investments on the China Pakistan Economic Corridor, if not abandon them. These projects will put the nation deeper into debt. Also, the IMF and the United States are against lending money to Pakistan if it will be paid to China.

Peace with Neighbors

The defense expenditure in Pakistan is abnormally large. It is the second most expensive line item on the state budget. Other important facilities such as health and education do not receive as many funds as defense does. This abnormally large spending on defense programs is bad for the Pakistani economy. In the short run, it shows an increase in the GDP numbers. However, every bomb, tank or aircraft built is actually taking resources away from people with real economic needs. This is the reason why peace with neighboring India is of utmost importance. The biggest reason why Pakistan has to spend so much money on defense is that it has to compete with neighboring India.

Expenditure on Education

At the present moment, Pakistan is engaged in a needless arms race with its neighbors. The money being spent on creating bombs and other equipment of war is simply being wasted. On the other hand, the human resources in Pakistan also do not have many opportunities. Pakistan needs to spend money in order to increase the standard of education in the country. Once this standard has been improved, Pakistan will also have an abundant supply of qualified human resources, just like its neighbor India. This is how the information technology industry in Pakistan will start flourishing. Pakistani Prime Minister has already shown a keen interest in improving the ground level infrastructure of education institutions and ushering in an IT revolution in Pakistan.

Reducing Corruption

The Pakistani public is fed up with corrupt politicians. Any money that they pay in taxes ultimately ends up in the coffers of a corrupt politician. The problem with corruption is that Pakistani ministers have spent state money on unviable projects only because they were receiving kickbacks. Most public works projects that have been undertaken in Pakistan are needlessly expensive and in most cases not required. In the future, Pakistan will have to channelize its efforts to ensure that only the most viable projects are funded by the government. This can be done by tackling corruption with an iron fist.

Encouraging Tax Payers

Lastly, Pakistan cannot come out of this economic hole unless it starts receiving more revenue in the form of taxes. Taxpayers in Pakistan are reluctant to pay their share because of the problems like corruption which have been mentioned above. Pakistan needs to do two things. Firstly, the level of economic activity needs to be increased so that more taxes are owed to the government. Secondly, a culture of tax compliance needs to be inculcated. This culture can only be inculcated if there is a strict penalty for non-compliance.

To sum it up, taking IMF and other loans are only the beginning of the story for Pakistan. If these loans ever need to be repaid, then Pakistan faces a mammoth task. Many fundamental changes will have to be made to the Pakistani economy in order to make it self-sufficient.

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