What if we default?

It is understood that if Pakistan defaults, it will be completely torn down; however, that is not the reality. Countries default and recover. Default is not an unprecedented event in human history. Technically speaking, Pakistan has defaulted 24 times, as we seek assistance from the IMF when we stand on the edge of default.

The significant question is, why does Pakistan not declare its default? In simple words, default means that we are unable to pay our loans. Once a country declares default, it will be unable to obtain dollars from the lenders, its currency will depreciate, and it will struggle to pay its import bills. Undoubtedly, this will create chaos in the country, leading to Inflation, temporary unemployment, and a shortage of certain commodities. However, if we observe the current condition of Pakistan, are we not already facing these problems? The price of sugar has surged from Rs.145-160 to Rs.170 per kg, gram pulses saw a hike from Rs.235-300 to Rs.280-420, and the price of meat has risen by Rs.50 to 100 rupees. These are just the colours of Ramadan. Unemployment projected for Pakistan for the year 2025 by the IMF is 7.5%, which means that more than 6 million people will remain unemployed.

Then, who will be most affected if we default? The answer is quite straightforward: the elite. This fact is often overlooked in discussions. One might wonder how the elite will be impacted the most. Statistics will provide the answer to this question.

The top 1% of Pakistan’s population holds more wealth than the bottom 70%, and the top 10% of households account for 42% of the country’s income. On the other hand, the bottom 50% account for only 13%, which means that if the currency depreciates, the wealth that the elite has will lose its value, which will directly shake their economic condition. So, they protect their ill-gotten gains by surrendering the country’s economic sovereignty to foreigners.
Moreover, only 9% of households in Pakistan have cars, while 53% have motorcycles. This means that only a small group of people will be affected the most if the fuel price goes up because it will devalue large vehicles because of their fuel consumption capacity.

This means that the elite will bear the brunt the most. Therefore, the upper equilibrium sees no incentive in the official declaration of default and repeatedly approaches the IMF, which continually tightens the conditions for the loan and extracts more economic sovereignty from the country. Conversely, countries that have defaulted display better economic indicators than Pakistan.
The GDP per capita of Sri Lanka—which recently defaulted —and Argentina—which holds the world record in default—are $3,672 and $14,187, respectively, while the GDP per capita of Pakistan is $1365. GDP per capita is basically the country’s output per person, which generally tells about the average living standard and average productivity of the country’s workforce. Simply put, it gives an idea about the country’s economic development.
One can observe that both defaulted countries are economically more developed than Pakistan because they negotiated their debts with the creditors and protected the country from the severe loan conditions that are imposed when you demand a loan when you stand on the brink of collapse and enter the vicious cycle of debt from where coming out is near to impossible.

Pakistan is not learning from the past and the government is protecting the interests of a few, betting the future of the nation, while the need of the time is economic development because without a prosperous economy, the world will not take us seriously. The contemporary economies are knowledge-based economies, which means that the most critical asset of the country is now human capital instead of industry, but in Pakistan 40% of our children are of stunted growth reflecting the fragile condition of the country.

Pakistan needs to increase the size of its economic pie to create more financial space to invest on human capital otherwise the 64% of youth will come a liability instead of an asset. But for this Pakistan needs to undergo some hard time because without passing through the Kilen one cannot become gold.

BIO:

M Ahmad is a dedicated article writer currently pursuing his studies at the National Defence University (NDU), Islamabad, Pakistan. With a passion for writing and a keen eye for detail. He has a keen interest in a variety of topics, including politics, policy, economics, culture, and Islam.