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Why Pakistan May Follow Sri Lanka's Path in Economical Turmoil

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By Muhammad Sarib AliPublished 12 months ago 4 min read
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Why Pakistan May Follow Sri Lanka's Path in Economical Turmoil

Introduction:

Pakistan and Sri Lanka share many similarities in terms of their economic challenges. Both countries have been struggling to sustain economic growth and have been facing a severe debt crisis for years. While Sri Lanka's debt crisis has worsened over time, Pakistan is on the verge of following the same path due to its high debt burden and the lack of a sustainable economic growth model. This article will explore the reasons why Pakistan may soon find itself in the same economic turmoil as Sri Lanka.

Pakistan's Economic Challenges:

Pakistan's economy has been facing multiple challenges for years, including a large trade deficit, declining exports, and a high fiscal deficit. The country's foreign exchange reserves have been steadily declining, and its debt burden has been increasing at an alarming rate. According to the State Bank of Pakistan, the country's external debt and liabilities rose to $123.8 billion in the first quarter of the fiscal year 2021-22, an increase of $4.4 billion from the previous quarter. This indicates that the country is heavily dependent on external borrowing to finance its current account deficit and debt repayments.

The IMF Bailout:

To tackle its economic challenges, Pakistan has turned to the International Monetary Fund (IMF) for a bailout package. In 2019, the country secured a $6 billion bailout package from the IMF to support its economic reforms and stabilize its economy. However, the IMF bailout has come with strict conditions, including tax reforms, fiscal consolidation, and structural adjustments, which have put significant pressure on the country's economy and its citizens.

Sri Lanka's Economic Crisis:

Sri Lanka's economy has been in crisis for several years due to its rising debt burden, declining foreign exchange reserves, and low economic growth. The country's debt crisis has worsened in recent years, with its debt-to-GDP ratio reaching 99% in 2020, the highest in South Asia. The country's inability to repay its debt has led to a credit rating downgrade, which has further exacerbated its economic challenges.

Why Pakistan May Follow Sri Lanka's Path:

Pakistan's high debt burden, declining foreign exchange reserves, and low economic growth make it vulnerable to the same economic challenges that Sri Lanka is facing. Pakistan's debt-to-GDP ratio reached 87% in 2020, which is close to the 100% threshold that Sri Lanka has already crossed. Moreover, Pakistan's trade deficit has been increasing, and its foreign exchange reserves have been declining, which indicates that the country may soon find itself in a similar economic crisis as Sri Lanka.

Comparison between Pakistan and Sri Lanka with some examples:

1. Debt Burden:

Both Pakistan and Sri Lanka have been facing a severe debt burden for years. Sri Lanka's debt-to-GDP ratio reached 99% in 2020, the highest in South Asia. On the other hand, Pakistan's debt-to-GDP ratio reached 87% in 2020, which is close to the 100% threshold that Sri Lanka has already crossed.

Example: Sri Lanka recently had to default on a $1 billion debt repayment to India due to its financial struggles, highlighting its debt crisis. Similarly, Pakistan has been struggling to repay its debts and has had to turn to the IMF for a bailout package.

2. Economic Growth:

Both countries have been facing low economic growth, which has further exacerbated their economic challenges. In 2020, Sri Lanka's economy contracted by 3.6%, while Pakistan's economy grew by only 0.4%.

Example: Sri Lanka's tourism industry, which is a significant contributor to its economy, has been severely impacted by the COVID-19 pandemic. Similarly, Pakistan's exports have been declining, and its manufacturing sector has been struggling to grow.

3. Foreign Exchange Reserves:

Both countries have been facing declining foreign exchange reserves, which are crucial for their economies to function. In 2020, Sri Lanka's foreign exchange reserves fell to $4 billion, while Pakistan's foreign exchange reserves declined to $12.8 billion.

Example: Sri Lanka had to turn to China for a $1.5 billion currency swap facility to support its foreign exchange reserves. Similarly, Pakistan has had to rely on borrowing from international financial institutions to support its foreign exchange reserves.

4. IMF Bailout:

Both countries have turned to the IMF for a bailout package to tackle their economic challenges. Sri Lanka secured a $1.5 billion bailout package from the IMF in 2019, while Pakistan secured a $6 billion bailout package from the IMF in the same year.

Example: The IMF bailout package comes with strict conditions that have put significant pressure on both countries' economies. In Sri Lanka, the government had to implement fiscal reforms and austerity measures, which led to significant social unrest. Similarly, in Pakistan, the government had to implement tax reforms, fiscal consolidation, and structural adjustments, which have been challenging for its citizens.

Conclusion:

Pakistan's economic challenges are similar to those of Sri Lanka, and the country may soon find itself in the same economic turmoil if it does not take immediate measures to address its debt crisis and promote sustainable economic growth. The country's reliance on external borrowing to finance its current account deficit and debt repayments is not a sustainable economic model, and the government needs to focus on increasing its exports and attracting foreign investment to boost its economy. Moreover, the IMF bailout package comes with strict conditions that may further exacerbate the country's economic challenges, and the government needs to develop a long-term economic development plan that is not dependent on external borrowing. If Pakistan fails to take immediate action to address its economic challenges, it may follow Sri Lanka's path and face a severe debt crisis that could have significant social and economic implications.

politics
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About the Creator

Muhammad Sarib Ali

Sarib is an experienced Content Writer with 5 years of experience in the CNet industry. He is a creative and analytical thinker with a passion for creating high-quality content and crafting compelling stories.

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