Honouring the historic relations between the United Arab Emirates (UAE) and Pakistan, a $2 billion loan has been rolled over and an additional loan of $1 billion has been given as we face a severe cash crunch that has left little room for the government to even consider debt repayment. As both sides delve into a deeper relationship surrounding trade and investment, Pakistan must also devise a strategy through which its debt problem can be solved in the long-term.
As of right now, our country owes a cumulative of $100 billion in loans to the international community, $21 billion of which has to be paid yearly. This exorbitant amount of debt has put us in a tough spot as our foreign reserves keep dwindling to the point of reaching an eight-year low of $5.576 billion which is only enough to cover 3 weeks of necessary imports. In the meantime, inflation has skyrocketed, economic production has ebbed and investment is reaching alarmingly low levels as external investors have deemed Pakistan a country supporting an incredibly high risk factor. Financial institutions like the World Bank and International Monetary Fund have advised the country to consider debt servicing and this roll over of $2 billion is definitely going to provide some cover from the pressure.
Not only this, but the UAE has also been generous enough to provide an additional $1 billion which it hopes will be allocated to the field of trade, investment and energy with the objective of creating revenue streams for the country so that it can rescue itself from further turmoil. Reinvestment into the country will be the only way through which we will regain some ground and cut the fiscal deficit to the point that it is lower than our growth rate.
Alternative methods to reduce financial burden will be essential and these measures include things like cutting expenditures to below the rate of inflation, taxing the untaxed, encouraging local industries to maximise output and reducing federal money allocations. There is no doubt that these are hard steps to take but at this point in time, they are absolutely necessary if we are to overcome this burden of debt that countless decades have accumulated for us.