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Pakistan should seek to suspend international debt repayments and restructure loans after devastating floods triggered a humanitarian emergency and imperiled the country’s finances, the Financial Times reported on Friday, citing a UN policy memorandum.
The draft paper from the UN Development Program, according to the FT, proposes that Pakistan negotiate debt relief with creditors to “stem the climate-change-fueled crisis”.
The memorandum, which the UN Development Program will share with Pakistan’s government this week, states that the country’s creditors should consider debt relief so that policymakers can priorities financing its disaster response over loan repayment, the newspaper said.
Pakistan’s largest creditors include Chinese lenders, to whom Islamabad owes more than $30bn accumulated through Beijing’s Belt and Road Initiative, along with countries such as Japan and France, the World Bank and commercial bondholders, FT said.
Pakistan’s payments could be “suspended at the earliest to free up fiscal space for urgent disaster response and recovery, social protection and development needs in the country, which have been aggravated by the catastrophic floods”, the draft says.
It also proposes some restructuring or debt swaps, whereby creditors would forgo repayments in return for Pakistan agreeing to invest in climate change-resilient infrastructure.
The UNDP memo argues Islamabad and its creditors should find a longer-term solution that “would involve lowering Pakistan’s debts down to a sustainable level to enable the government to put people’s needs first”.
Pakistan has earlier estimated the damage at $30 billion, and both the government and U.N. Secretary-General Antonio Guterres have blamed the flooding on climate change.
Floods have affected 33 million Pakistanis, inflicted billions of dollars in damage, and killed over 1,500 people – creating concern that Pakistan will not meet debts.
