Pakistani Finance Minister Ishaq Dar said he would not approach China any differently than he would other countries as his government seeks to reschedule debt, and he expressed confidence in Pakistan’s ability to repay loans despite a struggling economy ravaged by devastating rains and floods.
Dar was in Washington to participate in annual meetings of the International Monetary Fund and the World Bank. Finance ministers from many countries and multilateral lenders gather in the U.S. every year to discuss the state of the global economy.
Speaking to VOA, Dar said, “God willing, there will be no possibility. Pakistan will not default.”
Credit rating company Moody’s recently downgraded Pakistan, casting doubt on the country’s ability to make loan payments. Dar, however, told VOA that he’s sure Pakistan can meet its financial obligations.
“I am very confident. … We are mobilizing resources; we are having commitments,” he said. “That was the reason I [came] here, to engage the multilateral donors, the bilateral donors,” he said.
While the finance minister expressed openness to rescheduling Pakistan’s debt, he said he would not go to multilateral donors and would instead work with bilateral donors or individual countries, emphasizing that he would not seek any reduction in debt principal, calling it “morally and contractually wrong.”
Asked if he has discussed debt rescheduling with China, to which Pakistan owes the biggest chunk of its external debt — roughly $30 billion — Dar said he was not worried about the size of that debt.
He said that there was a lot of speculation that Pakistan might do a “special deal or soft handling with China and some other countries,” but he aimed to have the same understanding with all bilateral creditors.
“We’ll talk to all bilaterals, you know, creditors and lenders. But the treatment will be based on the principles of just [justice] and equality,” he said.
According to a Reuters report, Pakistan is planning to reschedule nearly $27 billion of its debt.
Pakistan’s external debt is more than $130 billion, and its debt-to-GDP ratio is close to 75%. Its current foreign reserves of $13.25 billion are barely enough to support the import-reliant economy for a few weeks. Its currency, the rupee, however, has bounced back a bit after losing almost 30% of its value against the U.S. dollar this year.
In August, the IMF approved a much-needed $1.17 billion loan disbursement after tough negotiations to prevent Pakistan from defaulting on loan repayments. Additional support from traditional allies such as China, Saudi Arabia, Qatar and United Arab Emirates also helped stave off the crisis.
Monsoon, flood costs
But just as Pakistan barely managed to meet its financing needs of almost $35 billion for its fiscal year ending in June 2023, unusually heavy monsoon rains in the summer caused billions of dollars in damages, devastated 4 million acres of crops, displaced almost 8 million people and affected nearly 15% of the country’s population of 220 million.
At a news conference in Washington, Dar said he had seen an initial joint report by the World Bank and the U.N. Development Program that puts Pakistan’s flood-related damages at $32.4 billion and estimates the country will need over $16 billion for recovery.
A recent report released by the World Bank said Pakistan’s economy is expected to grow by a mere 2% this year because of the floods, and 5.8 million to 9 million people could be pushed into poverty “without decisive relief and recovery efforts to help the poor.”
The World Bank pledged to provide $2 billion in aid to Pakistan after the bank’s vice president for South Asia, Martin Raiser, had visited the country last month. The IMF told VOA it would send a mission to Pakistan next month.
During Dar’s visit, IMF and World Bank officials expressed sympathy for Pakistan, but they discouraged its government from providing untargeted subsidies to deal with the effects of the floods and urged it to reform its energy sector, which loses millions of dollars annually because of subsidies.
Dar took office barely three weeks ago, after his predecessor had been forced to resign five months into the job largely because of high energy prices due to the tough reforms Pakistan had promised in order to secure the $1.17 billion loan tranche from the IMF.
The installment was part of a roughly $6 billion deal reached with the international lender in 2019 and due to finish in June 2023.
Dar said that the IMF had not responded to Pakistan’s request to ease the conditions of that loan in the wake of the floods. However, the three-time finance minister said that he was committed to completing the program.
This is Pakistan’s 13th bailout program with the IMF. The country completed only one such program successfully by bringing necessary reforms in 2016, when Dar was the finance minister. Overall, Pakistan has gone to the international lender 23 times since becoming a member in 1950.
But Dar doesn’t have much time. Pakistan’s parliament completes its term in August, leaving him with less than a year to fix a plethora of problems, and perhaps even less time if elections are called sooner.
Dar is serving an unpopular coalition government that took the reins after removing the populist Prime Minister Imran Khan in a parliamentary vote of no confidence in mid-April. Since then, Khan has held massive rallies, pressuring the government to hold elections soon.
Despite Pakistan’s political instability and bleak economic outlook, Dar expressed hope for the country’s recovery. His government’s unpopularity is the price it’s paying to save the state, he said, and his aim is to stop the downward economic trend in the brief time he has.