Is Pakistan going the Sri Lanka way? Broad macroeconomic indicators for both countries point to similarities in the economic outlook of the two nations on the sub-continent.
Mired in political crisis, Sri Lanka is facing massive external debt crisis as well. It took loans to speed up its infrastructure and energy sectors, but failed to get the return on investment. As per the Central Bank of Sri Lanka data, for its $51 billion external debt and liabilities, it has to pay around $4.5 billion annually till 2025 as debt servicing (principal + interest) from its foreign exchange reserve.
The island nation is also heavily import-dependent, with around 40% difference between import and export figures. It basically means the country needs additional sufficient foreign exchange reserves to ensure supply of essential items from abroad.
With increasing debt servicing each year, coupled with drop in big foreign currency earners, tourism and remittances, Sri Lanka has less than $2 billion in its foreign currency reserve. In May, the country had just $50 million of usable foreign currency reserve that was not enough even to arrange imports for a day. The rapid economic decline saw Sri Lanka defaulting on the external debt in May.
Pakistan is facing a similar crisis. The country has massive external debt of around $130 billion. In FY21, as per State Bank of Pakistan (SBP) figures, the country paid $13.424 billion in debt servicing. For the three fiscal quarters of 2022, the amount has...
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