ISLAMABAD: The IMF said on Wednesday the COVID-19 pandemic had exacerbated existing debt vulnerabilities and led to a surge in financing needs across the Middle East, North Africa, Afghanistan, and Pakistan (MENAP).
The Fund uploaded four questions about debt and financing risks from COVID-19 in MENAP as well as responses on its website on Wednesday.
“Across the Middle East, North Africa, Afghanistan, and Pakistan (MENAP), countries responded to the COVID-19 pandemic with unprecedented scale and urgency,” the IMF said. “While this strong response helped save lives and cushion the economic blow, it also exacerbated existing debt vulnerabilities and led to a surge in financing needs.”
Many countries were already facing high debt before the pandemic, the Fund said. By the end of 2019, one-half of MENAP countries had government debt ratios above 70 percent of GDP and one in four countries faced public gross financing needs above 15 percent of GDP annually.
With limited access to external financing, governments and large state-owned enterprises turned to domestic banks. This expanded banks’ exposure to the public sector in several of MENAP’s emerging markets— ranging from over 20 percent of total banks’ assets in Iraq, Jordan, and Qatar, to above 45 percent in Algeria, Egypt, and Pakistan, and up to 60 percent in Lebanon. By contrast, banks in emerging markets elsewhere had a public sector exposure of 12 percent, the Fund added.
The collapse in economic activity led to losses in fiscal revenues, as countries increased government spending to mitigate the pandemic’s impact.
“Although one-third of MENAP countries tapped international financial markets— representing 25.5 percent of worldwide emerging market issuances— domestic financing played a critical role, particularly during the first phase of the crisis when international markets were disrupted,” the Fund said. “For instance, governments in Egypt, Jordan, Pakistan, and Tunisia covered more than 50 percent of their public gross financing needs with domestic bank financing in 2020.”
Responding to a question of what challenges MENAP’s emerging markets would face due to higher financing needs ahead, the Fund said “if domestic banks fund these unexpected needs, in addition to the expected financing needed during 2021–22, Egypt, Oman, Pakistan, and Tunisia would absorb an additional 10 to 23 percent of banks’ assets as government debt by the end of 2022. As a result, Egypt and Pakistan’s banks could reach levels of public sector exposure similar to those currently seen in Lebanon.”
COVID-19 worsened debt vulnerability in Middle East, North Africa, Afghanistan, Pakistan — IMF
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COVID-19 worsened debt vulnerability in Middle East, North Africa, Afghanistan, Pakistan — IMF
- MENAP countries responded to COVID-19 pandemic with unprecedented urgency but also had to face surge in financing needs
- Collapse in economic activity led to losses in fiscal revenues, as countries increased government spending to mitigate pandemic impact
Pakistan finance minister touts debt discipline, export focus at Davos panel
- Aurangzeb says debt must fund exports, not consumption, for sustainable growth
- He says Pakistan used fiscal buffers to respond to floods without external appeals
KARACHI: Pakistan’s Finance Minister Muhammad Aurangzeb said on Wednesday disciplined borrowing, export-led growth and careful debt management were central to stabilizing the country’s economy, as Islamabad looks to unlock new sources of growth amid rising global debt levels.
Speaking at a panel discussion on the sidelines of the World Economic Forum (WEF) in Davos, he said debt was not inherently harmful if used productively, but warned that emerging economies such as Pakistan could not afford to deploy borrowed funds for consumption.
“For countries like Pakistan, debt must be channeled into investments that generate exportable surplus,” Aurangzeb said, according to a statement circulated by the Finance Division. “It is not about the availability of debt or funding, but how wisely and effectively it is steered to create long-term economic value.”
Pakistan has been pursuing fiscal reforms as part of an International Monetary Fund-backed stabilization program, including cutting subsidies, broadening the tax base and restructuring state-owned enterprises, as the government seeks to restore macroeconomic stability and revive growth.
Aurangzeb said Pakistan had reduced its debt-to-GDP ratio to 70 percent from 75 percent, achieved a primary fiscal surplus and brought inflation down from a peak of 38 percent to single digits, allowing the central bank to cut its policy rate to 10.5 percent.
He also flagged ongoing debt-management reforms, including liability management operations and buybacks, and said Pakistan plans to enter China’s capital markets with its first Panda bond, structured as a green bond.
Addressing climate risks, Aurangzeb said building fiscal buffers had allowed Pakistan to respond to recent floods using domestic resources rather than international emergency appeals, underscoring the need for resilience in climate-vulnerable economies.
He added that public-private partnerships and capital markets were playing a growing role in financing development, citing a $3.6 billion syndicated financing for a major copper mining project expected to generate $2.8 billion in annual exports from 2028.
The finance minister is part of Pakistan’s delegation visiting Davos for the annual gathering of global leaders and investors.
The delegation is led by Prime Minister Shehbaz Sharif, who highlighted the country’s shift toward an export-driven growth model, with a focus on minerals, information technology, artificial intelligence and digital services, while speaking at a breakfast event on the sidelines of the forum.
