Flood-Hit Pakistan Should Suspend Debt Repayments, Says UN Paper: Report

Pakistan should suspend international debt repayments and restructure loans with creditors after recent floods added to the country's financial crisis, the Financial Times reported on Friday, citing a...

A UN political memo said Pakistan should seek a suspension of international debt payments and restructure loans after devastating floods triggered a humanitarian emergency and jeopardized the country's public finances.

Draft paper from the United Nations Development Program, seen by the Financial Times,

He suggests that Pakistan negotiate debt relief with creditors to "stop the climate change-fueled crisis".

Pakistan's largest creditors include Chinese lenders, to whom Islamabad owes more than $30 billion accumulated through Beijing's Belt and Road Initiative, along with countries such as Japan, France, the World Bank and commercial bondholders.

The memo, which the United Nations Development Program will share with the Pakistani government this week, argues that creditors should consider debt relief so Islamabad can prioritize financing its disaster response over repaying loans.

Pakistan payments can be suspended as soon as possible to free up fiscal space for urgent disaster response and recovery,

The social protection and development needs of the country, which were exacerbated by the catastrophic floods,” reads the draft.

It also suggests some restructuring or debt swaps, where creditors forgo payments in exchange for Pakistan agreeing to invest in climate-resilient infrastructure.

Pakistan ,

With a total foreign debt of about $100 billion, it was grappling with a balance of payments crisis that had sapped its ability to repay loans even before the recent unprecedented floods. The country, which has been hit particularly hard by the global rise in commodity prices, received a $1.1 billion rescue plan from the International Monetary Fund last month.

The disaster compounded the challenges, affecting more than 30 million people and causing an estimated $30 billion in damage.

The UNDP memo says Islamabad and its creditors must find a long-term solution "that would include reducing Pakistan's debt to a sustainable level to enable the government to put people's needs first".

Observers said participation in any negotiations over China's debt, whose lending to the developing world has surged in recent years, would be particularly important as inflation pushes more countries into distress. Chinese lenders this week approved a $1.4 billion restructuring with Ecuador.

The United Nations Development Program and the Pakistani government are also jointly preparing a series of initiatives to attract private climate finance, such as green bonds. The agency is a "Technical Assistance Facility" to help Pakistan raise debt and equity from capital markets to invest in climate resilience.

While Pakistan has already received some debt relief under the G20 initiative to help countries combat the coronavirus pandemic, the floods have highlighted the financial risks of climate change. It also intensified calls for polluting rich countries to take steps to strengthen the solvency and resilience of weak developing countries.

Pakistan is among the 10 countries most affected by extreme weather events despite contributing less than 1 percent of global greenhouse gases, according to the United Nations Development Programme. A recent study estimated that climate change has increased flood intensity in Pakistan by up to 50 percent.

On a trip to Pakistan this month, the UN Secretary-General said:

General Antonio Guterres called for debt swaps to ease the burden on the country.

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ProBuzzFeed