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Debt relief

Prime Minister Imran Khan hit the nail on the head, while addressing the “Covid Action Platform” hosted by the World Economic Forum through video link on Wednesday, when he said that poor countries might not be able to survive the pandemic if international creditors and rich nations did not write off their debt immediately. It’s no good planning months or years into the future when one is without the basic foundation to build anything on. Countries like Pakistan are now effectively at their wit’s end. They threw pretty much what they had into the market to keep it solvent till there was no doing without the lockdown. But now it’s clear that we can just not have a prolonged quarantine, not the least because up to 25 million daily wagers could die from hunger and starvation, and one way or the other the economy would have to get going. But nothing will be done if we keep falling behind our debt repayment obligations. The same is true for many other countries as well. The prime minister mentioned that he had talked to leaders from Nigeria, Ethiopia and Egypt, and they were drowned in similar problems. There’s simply too many loans to repay while there’s barely enough in the kitty to keep everybody fed and safe. And there’s no knowing what will be done if there’s a second wave of the virus. The World Bank and IMF took a good initiative a little earlier when they pressed G20 countries to defer poor country debt at least till the year end. G20 countries have responded positively, and this is definitely a very nice idea and there as even been some movement on it, but things will have to move a lot faster if the third world is to be kept from falling over the edge.
Pakistan provides the perfect example. The government came up with a modest relief package to support businesses that were shut down and also gave handouts to those even lower on the food chain; something to the tune of $8-10 billion in all. But then the country simply ran out of money. And now along with arranging more money to keep the economy from collapsing we must also pay back loans that are due. SBP (State Bank of Pakistan) has tried to chip in by offering concessional loans, but commercial banks are so far unable to comply because of the overwhelming downside risk of default. That’s left the country desperate for money and Islamabad is now worried that it might be too late by the time G20 comes to the rescue. Imran Khan is right.
Rich nations should write off poor nations’ debt otherwise there’s no surviving the pandemic for the latter. And who will that leave to pay back rich nation debt. *



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