The G20 announcement concerning debt relief for 76 IDA borrowing countries, which includes Pakistan, is a great step that will allow countries to cope with the grave economic implications posed by the coronavirus pandemic. As pointed out by both the World Bank and the IMF, South Asia is likely to experience zero percent growth for the upcoming year. In such a scenario, as made clear by Prime Minister Imran Khan, developing countries simply do not have funds to meet debt obligations. By deferring payments as announced by G20, Pakistan will now be able to plan and actually spend on managing its economy during these turbulent times.

While the development serves as validation for the case for debt relief made before the world by the PM a few days back, the details of this G20 initiative are still awaited. Once they are revealed, the plan would warrant closer scrutiny to ensure that developing countries do not pay high costs in the future in exchange for this temporary relief. Depending on the economic scenario, the government should not shy away from making a case for extension in deferment period or even loan write-offs, if deemed necessary in the future. At least for now, the federal government has secured much needed breathing space to make necessary financial decisions for the local market.

The larger issue here is that Pakistan remains caught in a debt trap, having to be bailed out every few years. Long-term economic challenges must be addressed or the country will remain at the mercy of lenders. Current account and fiscal deficits, high domestic debt and debt-to-GDP ratio, non-performing public sector enterprise (PSEs), stagflation, poor revenue collection – these are some of the many serious issues that require redressal regardless of the pandemic. If this is not done, the country will remain addicted to debt, forever failing to realise its massive potential.