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Islamabad/Colombo ; India’s neighboring countries especially Pakistan and Sri Lanka are in trouble due to the throttling of these economies by the debt trap of China.

After taking huge debt from China, serving it is becoming a crisis for these countries, which is creating fear of sovereign default.

The News reported that in order to avert the balance of payments (BoP) crisis, Pakistan has chalked out alternative plans to bridge the yawning dollar funding gap to avoid sinking into a full-blown crisis until the stalled IMF program is restored, The News reported. News reported.

To restore confidence, there is an urgent need for dollar inflows to Pakistan, as the current account deficit has widened while the foreign exchange reserves are depleting at an accelerated pace.

Pakistan and the International Monetary Fund (IMF) have so far been unable to reach a consensus on the completion of the 7th review and release of a tranche of $960 million under the $6 billion Extended Fund Facility.

The IMF has indicated talks with the ‘new’ government and given the fluid political situation, the resumption of the IMF program is in danger.

Top official sources said China last week agreed in principle to rollover a $2.5 billion commercial loan, but Beijing officials are still in the process of rolling it out, The News reported.

However, there is another possibility that the Chinese may have refused the loan earlier, but after intervention at the highest level when Pakistan Prime Minister Imran Khan visited China, Beijing officials showed a willingness to move forward, reports stated in.

Sri Lanka has plunged into the worst economic crisis since its independence in 1948, following the declaration of an economic emergency by President Gotapaya Rajapaksa in September 2021, reports the Global Times.

According to the country’s central bank, it has foreign exchange reserves of only $2 billion and notes of $1 billion maturing in July 2022.

The country’s debt-to-GDP has increased from 85 percent in 2019 to 104 percent in 2021. The current foreign exchange shortage has created great difficulties in getting supplies of daily necessities including fuel, electricity, paper, milk powder. Etcetera

, The country is facing power cuts for hours every day and even newsprint has stopped due to shortage of printing paper. The report said that the general inflation rate in the country is over 17 per cent while the rate of food inflation touched 30.2 per cent in March.

Colombo borrowed the most from global capital markets, accounting for 47 per cent of its total debt, followed by Asian Development Bank (ADB) at 13 per cent, Japan at 10 per cent, China at 10 per cent, World Bank at 9 per cent. and India 2 percent.

 

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