Pakistan’s External Debt Unsustainability and the Required Approach

Abstract

The paper traces financial and non-financial variables that prompt external debt distress in Pakistan. It explains that the economic vulnerability emanates from macroeconomic imbalances and structural problems. The macroeconomic imbalances deeply connect with global oil crisis, the Russia-Ukraine war and non-compliance with mutually agreed International Monetary Fund (IMF) conditionalities in the short run. However, the structural reasons are rising oil expenses, growing domestic political scandals, increasing terrorist attacks, and high spending on military imports. The paper recommends formulating a publicly available blueprint i.e. theory of change to resolve Pakistan’s increased reliance on transnational lenders, including the IMF. It should include innovative policies to initiate the green revolution that could replace intermittent nonrenewable resources to incrementally lower oil imports. Moreover, to increase growth in the non-military sector employing non-kinetic means and engaging transnational governance entities to resolve geopolitical conflicts would reduce reliance on military sector. The paper concludes that undergoing policy innovation for environmental and economic sustainability, is inevitable for gaining benefits from global renewable energy transition and avoiding debt distress.