Home Latest News Pakistan Will Not Default on Debts despite Floods, Vows Miftah Ismail

Pakistan Will Not Default on Debts despite Floods, Vows Miftah Ismail

Finance minister admits path to stability has become ‘narrower,’ as IMF says it will work with global community to support relief efforts

by Staff Report

Former finance minister Miftah Ismail

Pakistan will “absolutely not” default on debt obligations despite the devastation caused by this year’s floods, Finance Minister Miftah Ismail has vowed during an interview with the Reuters news agency, while admitting the path to stability has become “narrower.”

According to the news agency, Ismail admitted that the path to stability had become “narrower” due to the challenging environment, but stressed that if the government took prudent decisions, the country would not default on its debts. “Absolutely not,” he added.

Pakistan was able to revive a stalled bailout with the International Monetary Fund (IMF) last month after undertaking several “harsh” decisions, including imposing higher tariffs on electricity and removing subsidies on petroleum products, which have triggered mass inflation. The overburdened consumer was barely making ends meet when this year’s floods—which have impacted over 33 million Pakistanis and caused billions of dollars in damages—struck, triggering further inflation due to the destruction of road networks and standing crops that have forced the government to import essential commodities to avoid a food shortage.

In his interview, the minister said that most stabilization policies and targets were still on track. Reiterating that Pakistan would soon increase its foreign exchange reserves by up to $4 billion—from the existing $8.6 billion, barely sufficient for a month of imports—he claimed the floods would not impact servicing of Islamabad’s external and local debt. He said the government expected more than $4 billion from the Asian Development Bank, Asian Infrastructure Investment Bank and the World Bank in addition to around $5 billion in investments from Qatar, the U.A.E. and Saudi Arabia.

The three “friendly” nations have expressed interest in investing in Pakistan, but there has been no timeline provided on when this might materialize. “They’re looking at the three airports in Pakistan, Karachi, Lahore and Islamabad on long-term leases,” Ismail said of Qatar’s planned investments. “They’re also looking at buying two plants that run on LNG; those I think will probably happen this calendar year,” he added.

“Yes, there has been substantial loss to the very poorest people and their lives will never be made whole again,” he said, blaming the current decline of the Pakistani rupee against the U.S. dollar on global markets being “jittery” about the country due to estimates that floods had inflicted losses of $18-30 billion. “Yes, our credit default risk has gone up, our bond prices have fallen. But, I think within 15 to 20 days, the market will normalize, and I think will understand that Pakistan is committed to being prudent,” he said.

IMF support

The finance minister’s interview came as the IMF, on Sunday, extended its sympathies to the victims of the floods. “We will work with others in the international community to support, under the current program, the authorities’ relief and reconstruction efforts, and especially their ongoing endeavor to assist those affected by the floods while ensuring sustainable policies and macroeconomic stability,” the global money lender’s country representative, Esther Perez Ruiz, told Reuters.

Several global leaders have suggested that Pakistan should request the IMF to provide additional funding to help tackle the floods, but Islamabad has not yet made any request to this effect, and earlier this month, Ismail said it was being considered but was not yet on the cards.

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