Pakistan Caught in the Federal Reserve’s ‘Debt Trap’
May 30, 2022 (EIRNS)—The nation of Pakistan, a nuclear weapons power, is another example—along with Egypt, South Africa, Argentina and many others—of what the Federal Reserve’s sudden loud talk of rapidly rising dollar interest rates is doing to developing countries. The Fed has certainly not tamed inflation—and real U.S. Treasury rates are still sharply negative—but it has triggered a rush of flight capital out of developing countries—$36 billions’ worth since the start of 2022, according to the bankers’ Institute of International Finance—and pushed their interest rates up and their currency exchange rates down.
Pakistan’s new Finance Minister Miftah Ismail announced May 29, according to the English-language Express Tribune for that date, that the country is shut out of international capital markets and is asking the IMF for, not a $6 billion loan program as previously discussed, but one for $36-37 billion. This has not been agreed upon. The country’s sovereign bonds, again per the Finance Minister, have lost one-third of their value since the beginning of 2022. The Pakistani rupee, now at 200/dollar, has dropped from 150/dollar one year ago, with the great majority of the drop occurring since February 2022 when the Fed’s governors started their interest-rate hawk act. Inflation in Pakistan is now officially at 13.8% annual rate for consumer goods, and that rate itself is apparently very much massaged. Moreover, the raging worldwide inflation in the most vital commodities since NATO’s monster sanctions were announced Feb. 28, has forced Pakistan to borrow and spend heavily to import 3 million metric tons of wheat, 4 million tonnes of cooking oil and 5 million bales of cotton during its 2022-23 fiscal year. Now, says Ismail, Pakistan must repay $21 billion in foreign debt during that fiscal year.
The new government’s sudden push for so much larger an IMF package may be influenced corruptly—recall the Argentine Macri government’s sudden huge IMF program right after it took power, which went for capital flight—but it is the case that Pakistan’s foreign debt has grown by 20% already in half of this fiscal year, to an official level of about $90 billion equivalent. Of that, its external debt to Chinese institutions is lately alleged by anti-Chinese experts to be $18 billion, which has not grown over that period; in fact, China rolled over $4.2 billion of it on March 30, out of this fiscal year or next.