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Time to Pay the Piper

While Ahmed tried to focus his discourse on Pakistan’s economic and social accomplishments, he did not mention its imposing foreign debt, with $45 billion coming due this year
By The News · 18 of March 2016 11:23:34
Birds fly as a rainbow arches over houses in a low income neighborhood in Karachi, Birds fly as a rainbow arches over houses in a low income neighborhood in Karachi, Pakistan, March 11, 2016. REUTERS/Akhtar Soomro, No available

When Pakistani Ambassador to Mexico Aitzaz Ahmed celebrated his country’s national day earlier this week with a diplomatic reception and luncheon at the Club Naval, he spoke about his country’s goal of regional peace.

“Pakistan’s foreign policy has been based on our founder Quaid-e-Azam Muhammad Ali Jinnah’s direction of friendliness and goodwill toward all the nations of the world,” he told his guests in his official welcome speech.

President Enrique Peña Nieto meets with Pakistani Ambassador to Mexico Aitzaz Ahmed. Photo: Notimex

President Enrique Peña Nieto meets with Pakistani Ambassador to Mexico Aitzaz Ahmed. Photo: Notimex

“The priorities of the government of Prime Minister Mohammed Nawaz Sharif are focused on a peaceful neighborhood, noninterference, collaboration and cooperation with all countries and regions, and taking advantage of Pakistan’s geostrategic location and attractive trade and investment policies.”

Ahmed went on to say that Pakistan remains “actively engaged in U.N. and other international forums with all our friends to promote security, peace and stability around the world.”

The ambassador said that his government’s policies have resulted in making Pakistan one of the world’s “rising economies,” as well as an attractive destination for investments and tourism.

And, indeed, Pakistan has shown an impressive record of economic stability in the last couple years, with the country achieving its goals under a carefully orchestrated International Monetary Fund (IMF) program.

Granted, growth has been a little slow (4.2 percent in 2015, as compared with the government’s aim-high target of 6 percent), but inflation is down, as is corruption, and, with a drop in terrorist attacks, foreign investment has begun to trickle into the South Asian nation.

But while Ahmed understandably tried to focus his discourse on Pakistan’s economic and social accomplishments, what he did not mention was its imposing foreign and national debt, with $45 billion coming due this year and serious international concerns as to whether that bill will be paid in full.

According to a report published last month by Bloomberg Business, Pakistan owes about $112 billion in combined local and foreign debt, and roughly 40 percent of that total is due to mature in 2016.

Pakistan has roughly $21 billion in foreign reserves, which means that the country will be hard-pressed to come up with the cash it will need to pay off its obligations.

Working in Pakistan’s favor is the fact that oil prices are at an all-time low (reducing the cost of energy for the net importer of crude and refined petrochemicals) and a $46 billion deal that Islamabad has just signed with China to construct an energy and transport corridor through Pakistan to the Arabian Sea over the course of the next five years.

Also in Pakistan’s favor is a projected 4.5 percent growth for 2016.

And finally in Pakistan’s favor is the fact that only about $4 billion of the money it owes is for external loans.

Moreover, the government has allocated a whopping 77 percent of its 2016 budget to loan repayments, and a less-sieved fiscal structure is allowing the Sharif administration to crack down on tax avoidances (a study conducted in 2014 showed that barely .3 percent of Pakistanis filed income tax returns that year).

In statement last month, Pakistan’s Finance Ministry said emphatically that the country “is committed to successfully implementing its IMF macroeconomic stability program,” and while outside investors are growing uneasy at the prospect of default, the government insists that Pakistan will meet its financial obligations come hell or high water.

We will pay our debt no matter what. We have never once defaulted on a debt and we are not about to do so now.”

— Aitzaz Ahmed, Pakistan’s ambassador to Mexico

All of which is reassuring to hear, but may be hard to put into practice when it comes to increased belt-tightening for the people and the implementation of new austerity measures for government spending to offset the servicing and payment expenditures.

Will Pakistan pay up?

Probably, although the country’s financial wizards are now inventing new soft-shoe routines to defer payment through a series of short-term instruments and other schemes.

There is even talk that the IMF might forgive its share of Pakistan’s debt to help maintain political calm in the country.

As Ahmed pointed out in his national day speech, Pakistan is a strategic player in regional peace, and no one wants to risk toppling the country’s fragile stability.

The price of forcing Islamabad to pay off its debts might just be too high for the international community.

Thérèse Margolis can be contacted at