Pakistan is one of 54 countries in desperate need of debt relief, having suffered over $30 billion in damages as a result of recent floods that devastated one-third of the country and left its crops in ruin.
The United Nations (UN) in its report, “Avoiding ‘Too Little Too Late’ on International Debt Relief”, warned that dozens of developing countries were facing a rapidly worsening debt crisis and the risks of inaction are dire.
The report, released ahead of meetings of the International Monetary Fund, World Bank, and G20 finance ministers in Washington, emphasized the importance of quick action.
The United Nations Development Program (UNDP) Chief Achim Steiner told reporters in Geneva that little has happened so far, and the risks have been growing. He said, “That crisis is intensifying and threatening to spill over into an entrenched development crisis across dozens of countries across the world”.
The report said that Pakistan has an average credit rating of 6 (‘highly speculative’), interest rate spread is higher than 10 pp and gross public debt is 74 percent of GDP. According to World Bank data, the country had PPGE debt worth US$78.9 billion in 2020 with 86.6 percent owed to official creditors, 27.3 percent owed to China, and 14.7 percent to the Paris Club. Six percent of the population in Pakistan is estimated to live in extreme poverty and the country ranks 147 (out of 182) on climate change vulnerability.
More data reveals that 46 of the 54 countries had accumulated public debt totaling $782 billion by 2020. Argentina, Ukraine, and Venezuela account for over a third of that total.
The situation is rapidly deteriorating, with 19 developing countries effectively barred from the lending market — ten more than at the start of the year. Meanwhile, a third of all developing economies’ debt has been classified as substantial risk, extremely speculative, or default. In this regard, the countries most at risk are Sri Lanka, Pakistan, Tunisia, Chad, and Zambia.
According to the UNDP chief economist Gray Molina, private creditors have been the most significant impediment to moving forward with necessary restructuring. However, current market conditions could pave the way for a debt deal, as private creditors’ holdings have lost up to 60 percent of their value.