EDITORIAL: Pakistan will no doubt happily take the $800 million worth of debt relief extended by 14 G20 countries so far, even though it would have liked the remaining six countries to agree on another $1 billion along with the others as well. Still, the finance ministry has reportedly admitted that it has suspended debt payments to those six also for the time being, so some sort of understanding must already have been reached. This is a very important and welcome development. $1.8 billion is nothing considering our debt liabilities of course, it is also not nearly enough to finance another stimulus package if the economy needs to be shut down again, but this amount will still go a very long way in providing immediate fiscal breathing space to the government as it begins the extremely complicated process of resource allocation to face the second wave of the coronavirus. The next couple of quarters will without a doubt be Pakistan's make or break moment. The economy has been struggling since well before the pandemic and it just doesn't have the depth to survive another complete shutter down right now, so it will need all the help it can get.
This problem is common to all highly indebted countries, especially now that Covid-19 has sent the global economy through the floor. And unless the world's richer countries come to their aid there is a very serious chance of some of them suffering traumatic bankruptcies and even deeper financial crises that can and will leave them crippled for far longer than the unusual situation created by the pandemic can be expected to last. That is precisely why the International Monetary Fund (IMF) felt compelled to jump onto the G20 debt moratorium debate and stress the importance of the initiative, even the need to extend it and consider writing off some of the debt permanently on a case-by-case basis. Prime Minister Imran Khan has also repeatedly made similar suggestions at important international gatherings, even at the United Nations (UN). The only problem is that some if not most of the G20 economies are among the hardest hit in the whole world when it comes to the fallout of Covid-19. And at a time when there's really no telling how long their economies are going to contract and how painful it is going to be, a few of them are just not sure about such gestures. Yet, as the Fund has pointed out, sometimes acting in what seems like self-interest doesn't really work out in your best interest. The G20, and also other advanced countries, face such a situation at the moment.
They must help struggling countries, especially those struggling with debt, to weather this storm. For it is in their own interest as much as the countries they are being asked to provide support to. If right now they say that they would have loved to help if only circumstances had allowed and then turn away to let much of the third world collapse, then who will they do business with once the pandemic is over and the sun shines on the world economy once again? Surely, they don't expect to sort out endless supply chain issues all by themselves and be able to sell what they produce to each other to everybody's satisfaction. The world is far too integrated to allow such a careless approach. Besides, the rich nations know well enough that whenever the world begins to return to normal it is going to be the economies struggling now that will spearhead the growth cycle, which makes them the markets where the bulk of the money will be made. That's a much better scenario than watching entire economies go belly up and your loans with them.
So the last thing Big Money should want to do right now is let frontier and emerging markets in Asia and Africa drown in debt. And there is no better way to help them really than freezing debt payments till they are back on their feet. Pakistan has very wisely reached such agreements with a number of countries outside the G20 as well, which shows that the government's thinking is correct. It must now make good use of elbow room and prepare for the crunch that is sure to come from all the body blows that the pandemic is delivering to the economy.
Copyright Business Recorder, 2020
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