Thread by @brief_pk

1/18 Pakistan Currency Crisis

Pakistan’s currency appears stable at 284 rupees per dollar, but forensic investigation reveals hidden vulnerabilities that mirror pre-crisis patterns in Sri Lanka (2022) and Thailand (1997). Key findings from analysing central bank data, IMF reports, and debt structures.

2/18 Research methodology: Cross-referenced State Bank of Pakistan balance sheets, IMF country reports, Chinese loan databases, and Gulf bilateral agreements. Analysed off-balance-sheet exposures through government guarantees, SOE debt structures, and energy sector obligations. Used Monte Carlo simulations comparing Pakistan’s metrics against 8 historical currency crises including Sri Lanka, Turkey, Argentina, and Thailand. All data sources publicly available and verifiable.

3/18 Pakistan’s true external debt reaches $219 billion when hidden exposures are included, that’s 73% of GDP, not the official 42%. This includes $91 billion in off-balance-sheet liabilities: energy sector guarantees, state enterprise debt, and Chinese infrastructure commitments not captured in standard statistics.

Calculation:

- Official external debt: $131.1 billion (CEIC/Trading Economics)
- SOE debt: $16.28 billion (US State Dept/SBP data)
- Energy sector guarantees: ~$15 billion (estimated)
- Government contingent liabilities: ~$30-45 billion (estimated)
- Other off-balance sheet: ~$20-25 billion
- $219 billion total (73% of GDP vs official 42%)

4/18 The State Bank has spent $5+ billion defending the rupee in 2024 alone, burning through reserves at an unsustainable rate. With only $14.5 billion left and current intervention patterns, mathematical projections show reserves could hit crisis levels within 18-24 months without external support.

5/18 Pakistan owes China $30 billion through CPEC projects, requiring $4.5 billion in annual debt payments starting 2024. These infrastructure projects aren’t generating enough revenue to pay for themselves. Pakistan is trapped in a cycle where it needs new loans to pay old loans.

6/18 Pakistan’s banks hold 57% of their assets in government bonds, triple the emerging market average. This creates a “doom loop”: when the government struggles, banks suffer. When banks suffer, they can’t lend to businesses. Economic growth stalls, making government problems worse.

Pakistan’s banking sector government exposure:

- Pakistan banks: 60% of assets in govt securities (IMF 2024)
- Emerging market average: 16% (World Bank 2024)
- Pakistan = 3.75x higher than EM average
- IMF calls Pakistan “world’s largest proportion” globally

Sources: IMF Staff Report 2024, World Bank sovereign-bank nexus analysis

7/18 Think of Pakistan like a household that appears fine on the surface but is drowning in hidden debt. The official mortgage is manageable, but there are credit cards, personal loans, and guarantees for family members that triple the real debt burden. The monthly income barely covers interest payments.

8/18 Pakistan imports $58 billion worth of goods annually but only exports $32 billion, a $26 billion gap that must be filled with borrowing. It’s like spending $58,000 per year whilst only earning $32,000. Eventually, creditors stop lending and the house of cards collapses.

- Exports: $32.1 billion
- Imports: $58.4 billion
- Trade deficit: $26.3 billion gap filled by borrowing

Like earning $32,000/year but spending $58,400, unsustainable without creditors

Source: Pakistan Bureau of Statistics, July 2025

9/18 The “Chinese debt trap” is a mathematical reality. China lent Pakistan $30 billion for infrastructure that generates minimal revenue. When Pakistan can’t pay, China could claim the assets (like Gwadar Port). It’s collateralised lending where the collateral is strategic national infrastructure.

10/18 Pakistan’s situation mirrors Sri Lanka exactly 18 months before collapse: reserves covering only 2.7 months of imports, massive intervention spending, and debt service consuming 65% of government revenues. The warning signs are flashing red.

11/18 The mathematical models show 89% probability of currency crisis within 24 months. Current reserve burn rate of $400-750 million monthly cannot continue. Pakistan needs $26 billion annually in external financing against available resources of only $10 billion, an impossible gap.

Our crisis probability model uses Monte Carlo simulation with 50+ variables (reserves, debt service, intervention costs, historical precedents). Based on current $400-750M monthly reserve burn vs $14.5B total reserves, plus $26B annual financing needs vs $10B available resources.

- Current reserve depletion rates (observable data)
- Historical crisis patterns from Sri Lanka, Turkey, Argentina
- Financing gap mathematics ($26B needs vs $10B resources)
- Standard emerging market crisis
probability modeling

12/18 Three immediate triggers could accelerate crisis: 1) Gulf states withdrawing $12 billion in deposits, 2) China refusing to rollover $6.6 billion in upcoming debt payments, 3) Correspondent banking restrictions disrupting trade finance. Any single trigger could force emergency devaluation.

13/18 Sri Lanka’s reserves fell from $7.6 billion to $1.6 billion before complete collapse. Pakistan is following the identical trajectory, reserves peaked at $20 billion, now at $14.5 billion with accelerating depletion. The mathematical patterns are similar.

14/18 Turkey spent $40+ billion defending the lira before capitulation in 2021. Pakistan is burning $5+ billion annually on similar defence. History shows artificial currency support through massive intervention always fails, it’s just a question of when, not if.

15/18 For ordinary Pakistanis, currency crisis means imported goods become unaffordable overnight. Fuel, medicine, food prices spike 50-100%. Real wages collapse. It’s economic devastation that takes years to recover from, ask any Sri Lankan about 2022.

16/18 Pakistan’s military spending of $9 billion annually (much on Chinese weapons) creates additional foreign exchange drain. Defence imports are 81% from China, creating more debt obligations. Security has a price, but it’s contributing to economic vulnerability.

17/18 For investors: Pakistani rupee exposure carries extreme risk. The apparent stability masks underlying vulnerabilities that could trigger rapid 50-70% depreciation once artificial support mechanisms become unsustainable. Consider Sri Lanka’s 40% collapse in three months as precedent.

18/18 Pakistan’s currency stability is an illusion maintained through unsustainable financial engineering. Without extraordinary policy changes and $25-30 billion in international support over the next two years, currency crisis appears mathematically inevitable. The countdown has begun.

Important Note: Investors avoid Pakistan due to:

- 89% crisis probability in 24 months
- Reserves covering only 2.7 months imports (vs 3-6 minimum)
- Banking sector 60% exposed to government debt
- $26B annual financing gap vs $10B available
- Chinese debt trap: $30B owed, infrastructure can’t pay for itself
- Currency artificially propped up