When the coronavirus pandemic broke out, Pakistan was already struggling to stabilize its weak economy. With a mountain of debt and a considerable population sunk in poverty, Pakistan went on to impose lockdown—the only precautionary measure against COVID-19.
However, it posed devastating impacts on the country’s socio-economic status, and First time in 68 years, Pakistan recorded negative GDP growth in FY 2019-2020. Yet, Pakistan had to repay 2989 million USD more than the preceding year regarding external debts.
The Pakistan government needs to mobilize a significant sum of revenue for the rehabilitation of primary economic sectors. At the same time, the cancellation of approaching debt repayments stands crucial in doing so.
This blog presents the following analysis:
Debt policy of Pakistan;
Macroeconomic impacts of COVID-19 pandemic;
The Importance of ‘debt cancellation’ for Pakistan’s survival.
Debt Policy of Pakistan:
From technologically advanced nations to the owners of vast natural resources, all the countries borrow money for financing their development projects and increasing their assets.
However, if these debts are not bending utilized efficiently, they will lead to problematic economic instability.
There are two types of borrowing: Domestic and External.
At the end of FY 2019-20, Pakistan’s total debts and liabilities stood at 265 billion USD, which makes up to 106.8% of GDP.
On June 30th, 2020, Pakistan’s external debt remained 112.86 billion USD (43% of total debts and liabilities). 
(All values are in billion USD) 
• Public sector external debt: 87.89
• From IMF: 7.86
• Public sector enterprises: 4.90
• Non-residents deposits: 1.86
• Bank borrowings: 2.78
• Private sector borrowings: 11.07
The external debt of Pakistan increased to 148pc in five years (2015-2020). There was an increase of 52% only observed within the last two years. 
The rising portfolio of external debt also leads to an increase in debt servicing. In 2019-20, Pakistan repaid the US $14.58 billion based on principal and interest; this is the US $ 2.99 (26%) more than what was paid in the year 2018-19.
Economically, the year 2019-20 has been devastating. Yet, the external lenders did not show any empathy or solidarity in this regard. International lenders did not provide any relief or concession to the underdeveloped countries.
On account of public debt, the total US $ 11.9 billion has been repaid to different lenders. While in the last fiscal year, this repayment was US $ 9.65 billion. An increase of US $ 2.25 billion in just one year. Similarly, an increase in the IMF’s repayment has also been observed from the US $ 519 million to the US $ 904 million this year.
Impacts of COVID-19
In response to Covid-19, the government decided to impose a lockdown. Due to the halt in economic activities, Pakistan’s economic condition worsened over time, and in FY 2017-2018, 5.53% of GDP growth was recorded. This period coincides with the election and transition of power. On the one hand, the newly elected PTI government inherited the downsides of previous economic plans; on the other hand, it also failed to address the fundamental issues. That was the time when Pakistan started to grapple with the fiscal deficit and debt crisis. Soon, the pandemic broke out. As a result, GDP shrinks down to -0.38pc in FY 2019-2020. 
The economy has been badly hit due to the lockdown and global economic slowdown. Economic Growth in Pakistan is projected to remain negative: -2.2 to -1.2 in 2020, 0.3 to 0.9 in 2021, and 3.2 to 3.3 in 2022, estimated by the World Bank.
A large number of the population work on daily wages. They are neither documented nor easy to trace. Individual households and small businesses were the hardest-hit institutions.
In June 2020, United Nations University estimated that due to a 20pc reduction in income/consumption, 10.4 million additional people might be pushed into poverty at $1.90 per day and 38.8 million people at $3.30 a day.
Besides, the overwhelming numbers of covid patients had to be hospitalized and quarantined. It crippled the health structure. It is a known fact that the health sector expenditures have never been the priority of any government.
The Need Of Hour
Now, Pakistan is experiencing the second wave of COVID-19. According to health experts, it projects more potential threats. In March 2020, the Pakistan government announced the Rs. 1200 billion “Economic Relief and Stimulus Package” to compensate for the loss of small businesses and individual workers, but this is not enough!
There is an immediate need to mobilize a significant sum of revenue for the following:
● To provide financial support to vulnerable and affected people.
● To grant subsidies to small businesses.
● To invest heavily in health and social protection.
● To supply the Personal Protective Equipment (PPE) for doctors, health workers, and hospital staff.
● To create awareness among the masses.
● To increase the testing capacity.
● To provide a compatible ventilation system in all district hospitals.
These things are the need of the hour. However, Pakistan is stuck in the worst financial crisis. The arrangement of such an amount of money is not possible unless the approaching debt repayments are canceled or rolled over.
While acknowledging this fact, Prime Minister Imran Khan also appealed to international institutions in a video link message. “We do not have the money to spend on already overstretched health services, and secondly, to stop people from dying of hunger,” he said.
He added, “I appeal to the world leaders, UN secretary-general, and all heads of the financial institutions to launch an initiative that will give debt relief to developing countries to combat the coronavirus.”
Our social media team recently carried out a campaign to raise our concerns with the “#DropTheDebtNotHealth” hashtag. The primary reason was to urge International lenders for the provision of relief in debt repayment schedules. Many celebrities, electronic and print, and social media personnel supported our campaign and raised their voices.
Therefore, the World Bank, IMF, Asian Development, all bilateral donors, and Private lenders must cancel Pakistan’s debt payable in 2020-21.
Cancellation will free up additional resources for the government of Pakistan to cope up with the COVID-19 challenge.
1. State Bank of Pakistan. https://www.sbp.org.pk/ecodata/index2.asp
2. State Bank of Pakistan. https://www.sbp.org.pk/ecodata/index2.asp
3. Pakistan Economic Survey, 2019-2020. http://www.finance.gov.pk/survey_1920.html
4. Pakistan Economic Survey, 2019-2020. http://www.finance.gov.pk/survey_1920.html