Why Pakistan is on the verge of getting defaulted?
Pakistan is currently facing a number of economic challenges that have put it at risk of default. Some of the main factors contributing to this include:
High levels of debt: Pakistan has a high level of debt, both in terms of its external debt (owed to foreign creditors) and its domestic debt (owed to domestic creditors). This has made it difficult for the country to service its debt and meet its financial obligations.
Low foreign exchange reserves: Pakistan's foreign exchange reserves are low, which makes it difficult for the country to meet its external debt obligations.
Lack of economic growth: Pakistan's economy has been struggling in recent years, with low levels of growth and high levels of inflation. This has made it difficult for the country to generate the revenue needed to service its debt and meet its other financial obligations.
Political instability: Pakistan has a history of political instability, which can make it difficult for the government to implement the economic reforms needed to address the country's economic challenges.
COVID-19 pandemic impact: The pandemic and the lockdowns it brought had a negative impact on Pakistan's economy, as it caused a decrease in exports and a decrease in remittances from abroad.
These factors have led to a situation where Pakistan is struggling to meet its debt obligations and is in need of financial assistance. The International Monetary Fund (IMF) has provided financial assistance to Pakistan in the past, and the country is currently in talks with the IMF for another loan package to avoid default.
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What can save them now?
There are a number of steps that Pakistan can take to try to prevent a default and address its economic challenges. Some of the main steps that could be taken include:
Implementing economic reforms: Pakistan's government will have to implement structural economic reforms to address the country's economic challenges. This could include measures such as reducing government spending, increasing revenue, and addressing structural issues such as energy shortages, which have been hampering the country's economic growth.
Restructuring debt: Pakistan may need to restructure its debt, which could involve extending the maturity of its loans, reducing the interest rate, or exchanging debt for equity. This would help to ease the country's debt burden and make it more manageable.
Increasing foreign exchange reserves: Increasing Pakistan's foreign exchange reserves would help the country to meet its external debt obligations and provide a buffer against external economic shocks. This could be done by increasing exports, attracting foreign investment, or receiving financial assistance from international organizations such as the IMF.
Improving governance: Improving governance would help to attract more investment and increase economic growth. This could include measures such as reducing corruption, increasing transparency, and improving the ease of doing business.
Addressing the COVID-19 pandemic impact: The government will have to address the impact of the pandemic on the economy by providing support to businesses and workers affected by the pandemic and lockdowns.
It is worth noting that these steps will not be easy to implement, and it will take time to see results. However, if implemented effectively, they could help Pakistan to address its economic challenges and avoid default.
