Pakistan is ensnared in a classic sovereign debt trap: too much foreign currency denominated external debt, too few foreign exchange resources, and too little cash flow denominated in foreign currencies to service contractual periodic interest and principal payments on such debt. The current approach to alleviating the excruciating pain of the debt trap is to seek relief via two routes: (1) taking on more new external debt to finance current required debt service payments, and (2) restructuring existing external debt to lower the debt service burden via a combination of capitalization of accrued interest payments, resetting required principal payments, and extending debt maturities.   […]