Struggling to pay

Published June 11, 2023

AS experts and analysts pored over the budget for FY2024, the consensus that emerged late Friday was that the government had thrown caution to the wind. Finance Minister Ishaq Dar’s budget speech lacked specifics regarding how the country’s managers would balance their books as the government went about jacking up its expenditures.

It was, therefore, being hoped that some of those important questions would be answered in the finance minister’s post-budget press conference, an annual ritual in which the incumbent defends the government’s budget proposals before journalists asking probing questions.

However, well before the post-budget interaction could take place, Mr Dar managed to ignite a new controversy by dropping a bombshell during a television appearance: Pakistan was considering restructuring its debt.

The ‘revelation’ startled many as it was the first direct admission by the government that it may be unable to meet its obligations in present conditions.

No wonder, then, that the question-and-answer session during the post-budget press conference was dominated by that concern. Mr Dar ‘clarified’ that Pakistan only planned to approach bilateral creditors for restructuring talks — mainly, other governments that have extended Pakistan loans — and that it would not be seeking ‘haircuts’ or write-offs; in lay terms, no concession on outstanding liabilities, but a renegotiation of the timeframe in which liabilities could be settled and/or if the loans could be restructured.

Mr Dar also insisted that multilateral creditors — the Paris Club — would be paid back on time, as it “would not be dignified” to tell them “that we cannot pay”. Importantly, he stressed that he saw no need for the restructuring of domestic debt, allaying one of the biggest concerns that had arisen after his TV appearance.

However, as multiple experts pointed out, Mr Dar cannot realistically expect bilateral creditors to agree to restructure their debt without the IMF on board.

And, given Mr Dar’s public attitude regarding the IMF these past few days, it seems very doubtful that the two are or will be on the same page anytime soon.

What was the point, then, of suddenly triggering speculation on a sensitive topic when his own government had been insisting that ‘all is well’? Only Mr Dar can answer that question.

Given the number of times PML-N leaders have claimed in recent days that their party’s biggest achievement is ‘saving’ Pakistan from default, it boggles the mind to realise that it may have, instead, set it up for even greater challenges.

This budget, if it is passed in its present form, could make it even more difficult for this government or a future one to negotiate with the IMF. Add to that the speculation triggered by the debt restructuring talk, and no other international creditors will be eying Pakistan favourably. Mr Dar, what have you done?

Published in Dawn, June 11th, 2023

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