Contours of debt trap


THIS refers to the news report ‘Trade deficit surges to all-time high’ (April 12). The trade deficit has already crossed the $23bn mark during July-March and expected to exceed $30bn by June, which is forcing the government to seek fresh borrowings from other sources to meet its import requirements, as well as debt service obligations.

The reserves have declined from the peak of $24.5bn in early October 2016 to $21.5bn as of now, with falling exports, increasing imports and the resultant enlarged current account deficit expected at about $6bn. Further erosion in reserves in the subsequent months looks certain as the improvement is not foreseen in the performance of external trade.

The above scenario demonstrates that the country is into a serious debt trap. Debt trap is a situation in which a debt is difficult or impossible to repay, the borrower is sucked into obtaining fresh debt to pay old debt and a vicious cycle is created from which there is no exit.

Pakistan’s external debt stands at $75bn while its exports are $20bn. This means its external debt is almost four times that of exports. Bangladesh’s external debt is just 1.2 times its exports.

The bottom line is that the nation is close to financial insolvency.

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