Pakistan’s macroeconomic mess

Pakistan’s external debt servicing for FY23 stands at 60 per cent of its exports, up from 12pc in FY11. While emerging market economies have seen a similar trend over the past decade, the increase has been relatively modest. For large emerging economies, external debt servicing as a percentage of exports and primary income increased from 12pc in 2011 to 30pc in 2020. The external debt servicing burden looks better when one includes remittances. External debt servicing as a percentage of exports and remittances increased from 10pc in 2011 to 35pc in 2022. However, according to the Economist Intelligence Unit, the same for the median African country was only 10pc at the end of 2021, up from 4pc in 2011. Some of the few African countries which face a higher external debt servicing burden than Pakistan (as a percentage of exports and remittances) include Mozambique, Namibia, Sudan, and Zambia. The situation is made worse by the fact that Pakistan’s foreign reserves with the State Bank cover only about a third of expected debt repayments in FY23. This includes deposits of close to $5 billion from ‘friendly’ countries. As a rule of thumb, the Greenspan-Guidotti rule suggests this ratio should be close to one.