Pakistan’s Existential Economic Crisis

(https://www.usip.org/publications/2023/04/pakistans-existential-economic-crisis)

Summary of the article

Pakistan is currently grappling with a severe economic crisis that threatens the nation's stability.
The crisis is characterized by soaring inflation, political conflict between the government and the
opposition, and a resurgence of terrorism. A primary concern is the risk of defaulting on the
country's massive external debt obligations, which have been exacerbated by the suspension of
the International Monetary Fund (IMF) program. As Pakistan's foreign exchange reserves are
currently around $4 billion, insufficient to finance even a month's worth of imports, the situation
is becoming increasingly precarious.

To assess the probability of recovery, four key factors must be considered: (1) the composition
of Pakistan's overall external debt; (2) the short- and medium-term repayment pressure on the
debt; (3) potential inflows that can offset debt outflows; and (4) Pakistan's external debt
management strategy.

Pakistan's external debt and liabilities amount to $126.3 billion, with 77% owed directly by the
government to various creditors. These creditors fall into four main categories: multilateral debt,
Paris Club debt, private and commercial loans, and Chinese debt. Multilateral debt accounts for
approximately $45 billion, primarily owed to institutions such as the World Bank, the Asian
Development Bank, and the IMF. Paris Club debt, amounting to $8.5 billion, is owed to a group
of 22 major creditor countries. Private and commercial loans, including Eurobonds and global
Sukuk bonds, amount to $7.8 billion. Lastly, Pakistan holds around $27 billion of Chinese debt.

Pakistan faces significant short- and medium-term debt repayment pressure, with $77.5 billion
in external debt due from April 2023 to June 2026. The major repayments over the next three
years are owed to Chinese financial institutions, private creditors, and Saudi Arabia. In the short
term, Pakistan must repay $4.5 billion in external debt between April and June 2023.

To avoid a sovereign default, Pakistan must increase earnings from exports, foreign direct
investment, and remittance inflows. However, projections indicate that these inflows will not
keep pace with the import bill and mounting debt repayment pressure. Over the next three
years, imports are expected to exceed the total dollar amount of exports and remittances,
leading to a current account deficit requiring external financing.

Pakistan's economic managers have two primary options for addressing the external debt
burden. The first is to take fresh loans and seek rollovers of debt, relying on Middle Eastern
partners and China for support. The second option is to seek pre-emptive restructuring of debt,
which would reduce repayment pressure and free up scarce dollars to finance the country's
current account deficit.
Failure to meet external debt obligations could lead to a sovereign default, resulting in a
cascade of disruptive effects. Import disruptions could cause shortages of essential goods and
commodities, intensifying public discontent and political turmoil. Moreover, the crisis could
exacerbate existing terrorism threats, with unpredictable consequences for the country's future.
To avert this scenario, Pakistan requires continued support from the IMF and assistance from
Chinese and Middle Eastern partners.

● Why does the author examine 4 key factors?

The author examines the four key factors to assess Pakistan's chances of recovering from the
economic crisis and avoiding a default on its massive external debt obligations. These factors
provide a comprehensive understanding of the country's debt situation, the challenges it faces,
and the potential sources of financial support it can rely on to overcome the crisis.

By analyzing these factors, the author aims to:

● Understand the composition of Pakistan's external debt, which helps in identifying the
major creditors and the nature of the loans they have provided.

● Evaluate the repayment pressure on the debt in both the short- and medium-term, which
highlights the urgency of addressing the issue and the scale of the challenge.

● Identify potential inflows that can offset the debt outflows, such as exports, investments,
and remittances, to determine if they can alleviate the repayment burden and contribute
to stabilizing the economy.

● Examine Pakistan's external debt management strategy, which offers insight into the
country's approach to handling its debt obligations and the options available to address
the crisis.

By evaluating these factors, the author can present a well-rounded analysis of the crisis, its
implications for Pakistan's stability, and the possible paths for recovery.

● What issues the author identifies ? What solutions author proposes?

The author identifies the following issues:

Worsening economic crisis in Pakistan, marked by skyrocketing inflation, political conflict, and
surging terrorism, which threatens the nation's stability.

The risk of Pakistan defaulting on its massive external debt obligations due to the suspension of
the IMF program and insufficient funds to meet repayment requirements.
Short- and medium-term debt repayment pressures, with $77.5 billion in external debt due
between April 2023 and June 2026.

Insufficient inflows from exports, foreign direct investment, and remittance inflows to cover the
import bill and mounting debt repayment pressure.

The author proposes the following solutions:

Securing support from the IMF: Pakistan needs to regain the trust of the IMF by implementing
necessary reforms and demonstrating its commitment to addressing the economic crisis.

Assistance from Chinese and Middle Eastern partners: Pakistan should seek continued help
from its partners, such as China and Middle Eastern countries, to rollover or refinance existing
debts and provide additional financial support.

Debt restructuring: As an alternative, Pakistan could explore the option of pre-emptive debt
restructuring to reduce the repayment pressure and spare scarce dollars in the economy to
finance the current account deficit. However, this process would be painful, lengthy, and
politically challenging.

The author emphasizes that averting a sovereign default and stabilizing Pakistan's economy will
require a combination of the IMF's continued support and assistance from its Chinese and
Middle Eastern partners, along with the implementation of difficult reforms to secure their trust.

There is a real danger that Pakistan could default on its debt, which could lead to
intensifying political turmoil amid already surging terrorism.

Pakistan's stability is at risk due to an ever-worsening economic crisis. The country is facing
multiple challenges, including skyrocketing inflation, political conflicts, surging terrorism, and a
massive external debt burden. These factors have been further compounded by the derailment
of the IMF program, which aimed to provide assistance to Pakistan to address its economic
woes. Pakistan's low foreign exchange reserves of around $4 billion also pose a significant
challenge in meeting the country's external financing requirements, further aggravating the
economic crisis. Urgent action is required to address the challenges posed by this crisis, and
Pakistan must prioritize implementing necessary economic reforms to improve its economic
stability and secure external financing to meet its requirements. The severity of Pakistan's
economic crisis presents a significant threat to the stability of the country, and effective
measures must be taken to safeguard its long-term prosperity.
1️⃣ Analysis of Pakistan's Debt Composition and Terms on the Debt

Overview of Pakistan's External Debt and Liabilities

As of December 2022, Pakistan's external debt and liabilities amounted to $126.3 billion, with
77% of the debt directly owed by the government to various creditors.

Categorization of Pakistan's Creditors

Pakistan's creditors fall into four broad categories: multilateral debt, Paris Club debt, private and
commercial loans, and Chinese debt.

● Multilateral Debt

Pakistan owes roughly $45 billion to multilateral institutions, with the World Bank, the Asian
Development Bank, and the IMF being its main creditors. The terms of most loans are
concessional, with a repayment timeline spanning 18 to 30 years, and most repayments are
spread in small transactions, presenting no major short-term risks for Pakistan.

● Paris Club Debt

Pakistan owes $8.5 billion to the Paris Club, a group of 22 major-creditor countries, with a
repayment timeline of 40 years and less than 1% interest rate.

● Private Debt and Commercial Loans

Pakistan's private debt amounts to $7.8 billion, including private bonds and global Sukuk bonds.
Its foreign commercial loans amount to nearly $7 billion, which is expected to increase to $9
billion by the end of the current fiscal year, with much of it owed to Chinese financial institutions.
These loans come with steep terms and high interest rates, with repayment periods ranging
between one to three years.

Private Debt and Commercial Loans

Alright, imagine you have a big piggy bank where you save money. Pakistan has a similar piggy
bank, but they also owe money to others. They borrowed money from people and companies in
different ways.

One way is through private bonds, which are like IOUs. People give Pakistan money, and
Pakistan promises to pay them back with extra money called interest. Pakistan has borrowed
$7.8 billion this way, using things called Eurobonds and Sukuk bonds. They recently borrowed
$2 billion more and will have to pay back different interest rates depending on how long it takes
to pay the money back.
 ● Some of this debt is recent: In the last fiscal year, Pakistan raised $2 billion by floating
Eurobonds of 5, 10, and 30 years at an interest rate ranging from 6 percent for five years
and 8.87 percent for 30 years.

Pakistan also borrowed money from banks and companies in other countries, called commercial
loans. Right now, they owe almost $7 billion and might owe $9 billion soon. A lot of this money
is borrowed from Chinese banks because they already paid back money to other banks.

These commercial loans can be a bit tough because they have to be paid back quickly, in one to
three years, and the interest rates can be high. Some loans have interest rates based on rates
in London (LIBOR) or Shanghai (SHIBOR). For example, Pakistan borrowed $2.2 billion from a
Chinese bank and will have to pay it back in three years with an interest rate based on the
SHIBOR plus 1.5 percent.

hamza.grewal@gmail.com
Well. What are private bonds ??? I mean how government issue them ? Why do they so?
Consider. Like im 12

Okay, let's think of private bonds like a special type of agreement between the government and
people who want to lend them money. When the government needs money to pay for things like
schools, roads, and hospitals, they can issue bonds.

Here's how it works: the government creates these bonds, and people or companies can buy
them. When someone buys a bond, they are basically lending the government money. The
government promises to pay back the borrowed money (called the principal) after a certain
amount of time, called the maturity date. In the meantime, the government also pays the
bondholder a little extra money, called interest, as a thank you for lending the money.

Governments issue bonds because it's a way for them to borrow money without taking out a
traditional loan from a bank. Bonds can be bought and sold between people, so they're more
flexible than loans. Plus, the interest rates on bonds are usually lower than the interest rates on
bank loans, so it's cheaper for the government to borrow money this way.

For example, Pakistan issued some bonds called Eurobonds and Sukuk bonds. People and
companies from around the world bought these bonds, lending Pakistan money. In return,
Pakistan promised to pay back the borrowed money with interest after a certain period (like 5,
10, or 30 years). This way, Pakistan can get the money it needs to pay for important things, and
the people who bought the bonds can earn a little extra money from the interest.

hamza.grewal@gmail.com
What are commercial loans? And why are they tough ? Like im 12

Commercial loans are loans that governments or businesses borrow from banks or other
financial institutions to help them pay for their projects or expenses. Just like when a person
borrows money from a bank, the borrower has to pay back the loan with interest over a certain
period of time.

Commercial loans can be tough for a few reasons:

Shorter repayment period: Unlike some loans that you can pay back over many years,
commercial loans often need to be paid back quickly, like in one to three years. This can make it
hard for the borrower to find enough money to repay the loan on time.

Higher interest rates: The cost of borrowing money is usually higher for commercial loans than
for some other types of loans, like bonds. This means that the borrower has to pay back more
money in interest, making the loan more expensive.

Variable interest rates: Some commercial loans have interest rates that can change over time,
like those tied to the London Interbank Offered Rate (LIBOR) or the Shanghai Interbank Offered
Rate (SHIBOR). This can make it hard to predict how much the loan will cost and how much
money the borrower will need to repay.

For example, Pakistan has borrowed a lot of money through commercial loans, mostly from
Chinese banks. These loans can be tough for Pakistan because they have to be paid back
quickly, they have high interest rates, and sometimes the interest rates can change based on
rates in London or Shanghai. This makes it harder for Pakistan to manage and pay back the
loans, compared to borrowing money through bonds.

hamza.grewal@gmail.com
If they are tough, then why government take them?
There are several reasons why a government might choose to take commercial loans, even
though they can be tough:

Immediate funding: Sometimes, a government needs money quickly to finance projects or cover
expenses. Commercial loans can provide immediate funding because they are often approved
and disbursed faster than other borrowing options like bonds.

Flexibility: Commercial loans can offer more flexibility in terms of borrowing amounts and
repayment terms. A government might negotiate terms that are more suitable for their specific
needs with the lender, whereas bonds usually have fixed terms.

Diversification: To avoid relying too much on one source of funding, governments may choose to
borrow from various sources, including commercial loans. This diversification can help reduce
risks associated with relying on a single funding source.

Limited access to other funding sources: In some cases, a government might have limited
access to other borrowing options, like issuing bonds, due to unfavorable credit ratings, market
conditions, or regulations. In these situations, commercial loans may be one of the few options
available for borrowing money.

While commercial loans can be tough, they can also provide benefits that make them an
attractive option for governments in certain situations. It's important for governments to weigh
the pros and cons of different borrowing options and choose the one that best fits their needs
and financial situation.

Chinese Debt

Pakistan holds around $27 billion of Chinese debt, including bilateral debt, debt provided by the
Chinese government to Pakistani public sector enterprises, and Chinese commercial loans. The
bilateral debt is on concessional terms with a maturity period of 20 years, and Pakistan also has
a currency swap facility with China.

Conclusion

Pakistan's debt composition is diverse, with different terms and repayment timelines for each
creditor. While multilateral debt presents no major short-term risks for Pakistan, private and
commercial loans, as well as Chinese debt, come with steep terms and high interest rates.

2. Short- and Medium-Term Debt Repayment Pressure

Pakistan has a big problem with repaying its debts, which is causing a lot of pressure on the
country. Between April 2023 and June 2026, Pakistan needs to pay back $77.5 billion to
lenders, which is a lot of money for a country with a GDP of $350 billion. Most of the money is
owed to China, private lenders, and Saudi Arabia.

In the short term, Pakistan has to pay back $4.5 billion between April and June 2023. The
biggest payments are due in June 2023, when Pakistan has to pay back a $1 billion deposit to
China and a $1.4 billion loan to a Chinese bank. Pakistan is hoping China will agree to extend
the loan, like they've done in the past.

The problem is going to get worse in the next few years. By 2024-25, Pakistan will owe almost
$25 billion, including $15 billion in short-term loans and $7 billion in long-term debt. This
includes a $1 billion repayment on a bond in the fourth quarter. Pakistan is hoping its lenders
will roll over the short-term loans each year.

In 2025-26, the situation won't be much better, with Pakistan owing at least $23 billion, including
$8 billion in long-term debt repayments, which includes paying back a bond and a loan to a
Chinese bank.

Overall, Pakistan is facing a big problem with repaying its debts, especially to China, private
lenders, and Saudi Arabia. Pakistan is hoping to persuade its lenders to extend the loans or roll
them over so that it can manage its debt repayments.

Sure, here is the summary of the text with headings:

● Pakistan's Debt Burden

Pakistan is struggling with the pressure of repaying its external debts, which is a significant
burden on its economy. The country owes a total of $77.5 billion between April 2023 and June
2026, which is a lot of money for an economy with a GDP of $350 billion.

● Short-Term Debt Repayment Pressure

Pakistan is facing near-term debt repayment pressure, with external debt servicing due to
amount to $4.5 billion from April to June 2023. The major repayments are due in June 2023
when a $1 billion Chinese SAFE deposit and a $1.4 billion Chinese commercial loan mature.

● Challenging Fiscal Year Ahead

The fiscal year ahead will be challenging for Pakistan, with debt servicing set to rise to almost
$25 billion. This includes $15 billion of short-term loans and $7 billion in long-term debt,
including a $1 billion repayment on a Eurobond in the fourth quarter.

● Hopes for Refinancing

Pakistan is hoping to persuade its lenders to extend loans or roll them over, especially
short-term loans, so that it can manage its debt repayments.

● Debt Repayment Projections

By 2024-25, Pakistan will owe almost $25 billion, including $15 billion in short-term loans and $7
billion in long-term debt. In 2025-26, Pakistan will owe at least $23 billion, including $8 billion in
long-term debt repayments, which includes paying back a bond and a loan to a Chinese bank.

3️⃣ Exports, Investments and Remittances — and Pakistan’s Repayment Calculus

Pakistan's ability to repay its debt and avoid default depends on its earnings from exports,
foreign direct investment, and remittance inflows from foreign workers. However, all three
sources of income are unlikely to keep up with the import bill and debt repayment pressure.
Pakistan's total export earnings and remittances over the past three years amounted to $164
billion, compared to $170 billion worth of imports of goods. It is expected that over the next three
years, imports will continue to exceed the total dollar amount of exports and remittances,
leading to a current account deficit that requires external financing.

The IMF had previously estimated nearly $36 billion in exports for 2022-23; however, this has
been revised to $28-29 billion due to economic dislocation and rising business costs resulting
from uncertainty in the country. Foreign direct investment is also expected to remain subdued,
averaging a dismal $2 billion annually due to a challenging business environment and frequent
policy changes. Investor sentiment has been further impacted by the government's recent
restrictions on the movement of capital outside the country.

In conclusion, Pakistan's repayment calculus depends on exports, foreign direct investment, and
remittances. However, all three sources of income are projected to be insufficient to meet the
import bill and debt repayment pressure, leading to a current account deficit requiring external
financing. The uncertain economic and business environment, as well as government policies
and restrictions, have further dampened investor sentiment and foreign direct investment.

● Title: Pakistan's Ability to Repay Debt Depends on Exports, Investments, and

Remittances

Pakistan's ability to repay its debt and avoid default depends on its earnings from exports,
foreign direct investment, and remittance inflows from foreign workers.

● Exports and Remittances:

Over the last three years, Pakistan's export earnings and remittances were a total of $164
billion, compared to $170 billion worth of imports of goods. It is expected that over the next three
years, imports will continue to exceed the total dollar amount of exports and remittances,
leading to a current account deficit that requires external financing. The IMF had previously
estimated nearly $36 billion in exports for 2022-23; however, this has been revised to $28-29
billion due to economic dislocation and rising business costs resulting from uncertainty in the
country.

● Investments:

Foreign direct investment is also expected to remain subdued, averaging a dismal $2 billion
annually due to a challenging business environment and frequent policy changes. Investor
sentiment has been further impacted by the government's recent restrictions on the movement
of capital outside the country.

● Conclusion:

Pakistan's repayment calculus depends on exports, foreign direct investment, and remittances.
However, all three sources of income are projected to be insufficient to meet the import bill and
debt repayment pressure, leading to a current account deficit requiring external financing. The
uncertain economic and business environment, as well as government policies and restrictions,
have further dampened investor sentiment and foreign direct investment.

4️⃣ Options to Manage External Debt

Pakistan is facing a huge external debt burden and has only two options to address the issue.
The first option is to seek fresh loans and debt rollovers, but this is limited due to credit rating
downgrades, making it difficult to access the sovereign financing market. Pakistan is dependent
on Middle Eastern partners and China for both fresh loans and rollovers. Negotiations with the
IMF will determine the specific amount of loans sought. If the IMF program is revived, the
amount will be smaller than if it collapses. Pakistan will need a new IMF program, in addition to
new loans and rollovers from its Middle Eastern and Chinese partners, due to its external debt
burden over the next three years.

The second option is for Pakistan to seek a pre-emptive debt restructuring. This will help reduce
repayment pressure and provide some relief to the current account deficit. The government has
explored restructuring options but is reluctant to proceed because it will be a painful and long
process, and the associated austerity measures may lead to political backlash.

In summary, Pakistan's options for managing its external debt burden are limited to seeking
fresh loans and debt rollovers or pursuing a pre-emptive debt restructuring. The country's ability
to access the sovereign financing market is limited, making it dependent on Middle Eastern
partners and China for financing. A new IMF program will be necessary, regardless of the
outcome of negotiations. However, the government is reluctant to pursue debt restructuring due
to the painful and long process and the associated austerity measures that may lead to political
backlash.

● Pakistan has limited options available to address its external debt burden. The country's
ability to access the sovereign financing market has been limited due to credit rating
downgrades, making it difficult to secure fresh loans and debt rollovers. Two primary
options are available to Pakistan to address this problem:

Seek fresh loans and debt rollovers: Pakistan can seek fresh loans and debt rollovers from its
Middle Eastern partners and China. However, this approach comes with disadvantages such as
increased reliance on external financing, higher debt servicing costs, and reduced economic
sovereignty. Additionally, negotiations with the IMF play a crucial role in this process, as they
determine the amount of loans sought and the conditions attached to them.

Pursue a pre-emptive debt restructuring: Pakistan could pursue a pre-emptive debt

restructuring to reduce repayment pressure and provide some relief to the current account
deficit. Debt restructuring involves renegotiating the terms of existing debt to reduce the debt
burden. However, this approach comes with significant drawbacks such as the need for
austerity measures, political backlash, and the possibility of credit rating downgrades.

In summary, Pakistan has limited options to manage its external debt burden. The country can
seek fresh loans and debt rollovers or pursue a pre-emptive debt restructuring to address this
problem. Each approach has its advantages and disadvantages, and careful consideration must
be given to the best course of action. The role of negotiations with the IMF and Pakistan's
dependence on Middle Eastern partners and China for financing also play crucial roles in
managing the country's debt burden.

● What are the challenges that Pakistan faces in managing its external debt burden?
What options are available to the country for addressing this problem, and what
are the advantages and disadvantages of each? How has Pakistan's dependence
on Middle Eastern partners and China for financing impacted its ability to manage
its debt burden, and what role do negotiations with the IMF play in this process?
●
Pakistan's external debt burden is a significant challenge for the country's economic managers.
The primary challenge is limited options available to address this problem. Pakistan's ability to
access the sovereign financing market has been limited due to credit rating downgrades,
making it difficult to secure fresh loans and debt rollovers.

One option available to Pakistan is to seek fresh loans and debt rollovers from Middle Eastern
partners and China. However, this approach comes with disadvantages, such as increased
reliance on external financing, higher debt servicing costs, and reduced economic sovereignty.
Negotiations with the IMF play a critical role in this process, as they determine the amount of
loans sought and the conditions attached to them. If the IMF program is revived, the amount will
be smaller than if it collapses. However, even if the currently derailed IMF program is revived
and completed over the summer, Pakistan will still need a new IMF program, in addition to new
loans and rollovers from its Middle Eastern and Chinese partners, due to its external debt
burden over the new three years.

Another option available to Pakistan is to pursue a pre-emptive debt restructuring, which would
help reduce repayment pressure and provide some relief to the current account deficit.
However, this approach also comes with disadvantages, such as the need for austerity
measures and political backlash. The Pakistani government has explored restructuring options,
but has not yet taken action due to the associated pain and political backlash.

Pakistan's dependence on Middle Eastern partners and China for financing has also impacted
its ability to manage its debt burden. While this dependence has provided some relief, it has
also increased the country's external vulnerability, and it may limit Pakistan's policy options. The
role of negotiations with the IMF is critical, as they can provide Pakistan with much-needed
financing while also imposing conditions that aim to improve economic stability and reduce the
country's external vulnerabilities.

In conclusion, Pakistan's external debt burden is a significant challenge for its economic
managers. The country's limited options for addressing this problem include seeking fresh loans
and debt rollovers or pursuing a pre-emptive debt restructuring. The disadvantages of each
approach must be carefully considered, and negotiations with the IMF play a crucial role in this
process. Pakistan's dependence on Middle Eastern partners and China for financing has also
impacted its ability to manage its debt burden and must be considered in any approach taken to
address the problem.

● What is the possibility of Pakistan pursuing a pre-emptive debt restructuring to

address its external debt burden? What are the potential benefits and drawbacks
of this option, and why has the Pakistani government been hesitant to pursue it?
How might a debt restructuring process impact Pakistan's economy, and what
measures would be necessary to mitigate any negative effects? What role could
investment banks and advisors play in this process, and what steps might be
necessary to ensure that any restructuring is successful?

Pakistan's pre-emptive debt restructuring is a possibility that could help address the country's
external debt burden. This approach involves renegotiating the terms of existing debt to reduce
repayment pressure and provide some relief to the current account deficit. The potential benefits
of this approach include reducing external vulnerabilities, improving economic stability, and
providing some relief to the current account deficit. However, this approach also comes with
significant drawbacks, such as the need for austerity measures, political backlash, and the
possibility of credit rating downgrades.

The Pakistani government has been hesitant to pursue debt restructuring due to the associated
pain and political backlash. A restructuring process would involve negotiations with creditors
and would likely require austerity measures such as reduced government spending and
increased taxes. These measures are likely to be unpopular with the public and could result in
political backlash. Additionally, the restructuring process itself may be long and complicated, and
there is no guarantee of success.

If Pakistan decides to pursue debt restructuring, several measures would be necessary to

mitigate any negative effects. For example, the government may need to consider measures to
increase revenue and reduce expenditure, such as broadening the tax base, increasing tax
compliance, and reducing subsidies. The government may also need to seek technical
assistance from international financial institutions and other experts to help manage the
restructuring process effectively.

Investment banks and advisors could play a crucial role in the debt restructuring process. These
entities could provide advice on the restructuring process and help to identify potential investors
for the newly restructured debt. Additionally, they could help to develop a comprehensive debt
management strategy that would help Pakistan manage its debt burden over the long term.

In conclusion, debt restructuring is a possible option for Pakistan to address its external debt
burden. The potential benefits of this approach must be carefully weighed against the
drawbacks, such as the need for austerity measures and the possibility of credit rating
downgrades. If Pakistan decides to pursue debt restructuring, the government will need to take
several measures to mitigate any negative effects, including seeking technical assistance from
international financial institutions and other experts. Investment banks and advisors could play a
crucial role in the process, providing advice and helping to identify potential investors for the
newly restructured debt.

What does this mean for Pakistan's stability?

The possibility of Pakistan defaulting on its external debt could have serious consequences for
the country's stability. As a nuclear-armed nation with a population of almost 230 million people,
a default would have far-reaching implications that could threaten Pakistan's security and
geopolitical standing.

To avoid this scenario, Pakistan is heavily reliant on continued support from the International
Monetary Fund (IMF) as well as assistance from its partners in the Middle East and China.
However, securing this support has been challenging, and Pakistan may need to make difficult
reform choices to gain the trust of the IMF.

If Pakistan defaults on its external debt, there would likely be a cascade of disruptive effects.
The disruption of imports could lead to shortages of essential goods and commodities, which
could fuel public discontent and protests. In turn, this could create a more volatile political
environment and increase the risk of further political turmoil. Given Pakistan's demographic
profile and surging terrorism threats, the resulting crisis could take unexpected directions.
Overall, the possibility of a Pakistani default on its external debt poses significant risks to the
country's stability. The dependence on IMF support and foreign partners highlights the gravity of
the situation. It is essential that Pakistan take the necessary steps to address its debt burden
and maintain stability in the face of these challenges.