Pakistan trapped in vicious circle of taking out loans to repay previous loans


June 23, 2022 4:15 a.m. STI

Islamabad [Pakistan]Jun 23 (ANI): A Pakistani columnist has posed questions to the country’s “incompetent and failed leaders” asking how they are going to solve economic problems at a time when the country is trapped in a vicious cycle of taking out loans to repay previous loans.
Ayaz Amir, while writing for local Pakistani outlet Dunya Daily, said: “We have seen the rules of Ayub Khan (former President of Pakistan), Yahiya Khan, Zulfikar Ali Bhutto and Muhammad Zia-ul-Haq. We’ve seen governments of dictators and they all had one thing in common, take loans to solve problems and then take more loans to pay off the previous loan.”
He said this endless cycle continues and now Pakistan has reached a point where no one is willing to give the country new loans. “We could not solve the economic problems of our country when the population was 11 crores under the rule of Zia ul Haq. How are our incompetent and failing leaders to improve the economy when the population has doubled to reach 22 crore?” he asked in his column, local media reported.
Meanwhile, China has struck a tough bargain with Pakistan over the repayment of its loans and other investments in Pakistan. In fiscal year 2021-22, Pakistan paid about $150 million in interest to China for using a $4.5 billion Chinese trade finance facility. In the 2019-20 financial year, Pakistan paid USD 120 million in interest on USD 3 billion in loans.
China was quite strict in recovering the money from Pakistan. Take for example the energy sector in Pakistan, where Chinese investors have repeatedly insisted on solving problems with existing project sponsors in order to attract new investment.

Some Chinese projects in Pakistan are facing insurance issues for their loans in China due to Pakistan’s massive circular energy sector debt of around $14 billion.
While China is heavily responsible for Pakistan’s debt problem, it is the mismanagement of Pakistan’s economy by successive governments that has led to the current impasse.

Large loans from China, Saudi Arabia and Qatar as well as 13 International Monetary Fund (IMF) loans over 30 years (with most loan programs canceled mid-term for non-compliance lending), are a major cause of the economic downturn.
The $6 billion IMF loan in 2019 is also on hold, and China has responded to Pakistan’s frequent requests for help. Paradoxically, Pakistan, for its part, does not hesitate to play addicted to loans. This strategy has not borne fruit and only pushes Pakistan deeper into debt. Pakistan needs to closely monitor developments in Sri Lanka as it may be the next country to face the consequences of poor economic policies and a heavy debt burden. (ANI)


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