Pakistan – arguably South Asia’s weakest economy– is among the top 3 countries most vulnerable to a debt crisis, a new survey by Bloomberg has revealed.
Bloomberg’s debt vulnerability index based on a pool of 60 countries shows that Pakistan ranked 3rd, behind Egypt (2nd) and Ukraine (1st).
The ranking revealed individual countries’ exposure to public debt, interest costs, and yield on dollar bonds to measure each country’s level of debt vulnerability. Higher ranking corresponds to greater vulnerability to debt pressures while lower values reflect stronger resilience.
Compared to Ukraine (98.3 percent) and Egypt (92.9 percent), the Government of Pakistan’s debt is 73.6 percent of GDP. The cash-strapped South Asian nation’s interest expense as a percentage of GDP is 6.3 percent. Meanwhile, bond yields are 4th highest among countries most vulnerable to a debt crisis.
Notably, the higher the bond yield, the higher the rate of interest because of the bond’s higher risk of default.
It bears mentioning that these rankings are in tandem with the International Monetary Fund’s (IMF) worrying projections of Pakistan’s external debt to increase to $130.850 billion in 2023-24 (37.3 percent of GDP). Domestic debt has been projected at Rs. 43.574 trillion for 2023-24 and Rs. 49.803 trillion for 2024-25.
Risks to debt sustainability, already elevated at the time of the prior IMF reviews, have become more acute, given the scarcity of external financing and the large gross financing needs that persist over the coming years, further narrowing the path to sustainability.
Other countries
The data also showed that Bahrain’s (11th) debt is 124.7 percent of its GDP, the highest among debt-vulnerable nations.
At the green end of the table, Turkey, Honduras, Mexico, and Iraq ranked the best economies due to their strong economic resilience in terms of bond yields, interest expense, and debt (% GDP).
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