What happens if Pakistan defaults on its loans?

What happens if Pakistan defaults on its loans? What is default actually? Inability to fulfil an obligation, especially to repay a loan or appear in court is what default means.

Pakistan is undergoing a financial crisis since 1947 due to multiple reasons. Be it political instability, inflation, poor governance, natural disasters, struggle for existence, at the end of the day it is the economy that has to suffer and ultimately the survival of common man. While the rate of dollar exceeds 200 Rupees and petrol prices reaches the height of 250 Rupees per liter, those days are not far when the current degradation of Sri Lankan economy becomes the fate of Pakistan too. For past three months, Sri Lanka’s foreign currency reserves have virtually run dry and the locals are devastated by hunger and poor health.

Public Debt of Pakistan

As of March 2022, Public Debt of Pakistan is around PKR 42.9 trillion (USD 248.7 billion) which is 80.2 percent of gross domestic product (GDP) of Pakistan. The deflating economy of Pakistan has already attracted the outrage of public to an extent that lower middle class or even middle class are spiritless and are falling in depths of distress while the upper and elite class are finding a way to escape this country.

The worst impact of default in economic system is going to hit the already suffering trade of country. With appalling condition of economy, the nightmarish hit on out import export is going to render industries and its input helpless. The severe tsunami of unemployed youth is the worst case scenario of any developing country but with the current rise in downsizing, this seems to be a horrible future of the country.

Unfortunately for Pakistan to repay loans means to get more loans which has been and will continue to pressurize national treasure and per capita income. No doubt coming out of the grey list of FBR was splendid milestone yet Pakistan has to work continuously on its relation with World Bank and IMF.

Exhausted Funds

With exhaustion of funds and labor, a massive number of developmental projects will have to be ceased with countries like China, KSA. A sovereign default leads to three outcomes: from damaging a country’s reputation with international investors; to make it prohibitively expensive to borrow and wrecking confidence in the country’s currency. Initially China having its own axe to grind, it might openly accommodate Pakistan financially and morally to stabilize the economy enough to keep their projects running as Pakistan plays a pivotal role in their One Belt One Road initiative started in 2013.

Read how Overseas Pakistanis can still vote for Parliament.

The pride that Pakistan had at the time of its birth or even the struggles or sacrifices that laid its foundation would all come to a tragic end if Pakistan fails to repay its debts. The legal and social penalties are further going to take a massive hit at Pakistan’s international reputation. The only way to beat these worsening repercussions lies in the hands of policymakers and their sensible and practical strategies. The foremost step is to build a strong industrial base and well equipped youth.