Pakistan becomes 2nd largest country in region to pay 'heavy interest' on debts

Pakistan has become the second-largest country in the region after India, to pay high interest rates on its external debt for the past two years. Experts attributed this trend to the impact of an overvalued US dollar.

The cash-strapped Asian country's economy is burdened by an external debt exceeding $130 billion, which is a staggering 352 percent of Pakistan's average annual exports.

Amidst this financial crisis, Pakistan's long-standing allies have extended the highest amount of aid, totaling $29 billion, under multilateral and bilateral agreements.

However, Pakistan has been paying hundreds of thousands of dollars in additional interest costs due to an International Monetary Fund (IMF) condition that kept the US dollar artificially overvalued by at least one-fourth, or Rs67, for two years.

The Express Tribune quoted Ashfaq Tola, former chairman of the Reform and Revenue Mobilisation Commission, and CEO of Tola Associates, a tax advisory and consultancy firm.

Tola argued that without the IMF's condition, the dollar would have depreciated to Rs211.5 by the end of October.

He added that the rupee would not have weakened to Rs278 per dollar in 2023-24 if there had been no IMF-imposed exchange rate condition.

However, the deflationary trend enabled the government to reduce the inflation rate by two percent during the ongoing fiscal year, which would result in an increase in government savings of approximately Rs 6.4 trillion.

It is pertinent to mention that a one percent decline in interest rates would reduce debt repayment costs by at least Rs475 billion in the current fiscal year.