Struggling to Avoid Default: Pakistan’s Economic Crisis Deepens
By Pakistan’s economic crisis has been deepening over the past few months, with the rupee recording a historic low of 275 to the US dollar, inflation rising to over 27 per cent and foreign exchange reserves dropping to the lowest level since 1998 at around USD 3 billion, which is not enough to cover even a month’s imports.[0] In November 2022, the International Monetary Fund (IMF) had offered a $1.8 billion bailout package to Pakistan.[1] But the condition was that the Pakistani government would have to withdraw subsidies, which the Shehbaz Sharif government refused.[1]
In an effort to stave off an economic default, Pakistan has now tabled a 170 billion rupee ($643m) finance bill in parliament to secure funds from the IMF.[2] This includes imposing taxes worth PKR 170 billion ($640 million) in February, despite the mounting inflation. The IMF has also proposed a three-year Extended Fund Facility (EFF) for Pakistan, worth about $6 billion, to support the government’s economic reforms and help the country overcome its balance of payments crisis.[3]
However, Pakistan’s external debt stood at $126.9 billion dollars in September 2022.[1] The amount of debt it holds in relation to its Gross Domestic Product (GDP) is alarmingly high at 70%.[1] Approximately 50% of the income collected by the Pakistani government is allotted for servicing the debt.[1] Of Pakistan's total bilateral debt of $27 billion, $24 billion is owed to China.[4]
The country is now putting burden on its people to obtain IMF loan, avoid default and strengthen its fiscal position.[5] This has triggered fears of further deterioration in the overall situation as the new taxes could accelerate the country's spiraling inflation.[6]
In April 2022, a parliamentary vote of no confidence resulted in the removal of Prime Minister Imran Khan, leader of the Pakistan Tehreek-e-Insaf (PTI) political party, from government.[7]
The increase of the financial and economic crises in Pakistan is also having a negative impact on the development of Afghanistan's economy.[8] Afghanistan is in a humanitarian and economic disaster, as Pakistan’s main source of funding is gone.[9] Moreover, since Pakistan’s rupee is falling against the dollar, it is becoming expensive for Pakistan to import goods, widening the trade deficit in the recent years.[10]
These challenging times require strong political leadership.[11]
0. “Pakistan must set its house in order: Global experts on its economic crisis” msnNOW, 12 Feb. 2023, https://www.msn.com/en-in/news/world/pakistan-must-set-its-house-in-order-global-experts-on-its-economic-crisis/ar-AA17nFxc
1. “Global Watch | No bailout package can help Pakistan as it suffers from systemic failure” Firstpost, 8 Feb. 2023, https://www.firstpost.com/opinion/global-watch-no-bailout-package-can-help-pakistan-as-it-suffers-from-systemic-failure-12123192.html
2. “Pakistan Takes Key Step on Taxes to Get IMF Loan, Avoid Default” Bloomberg, 15 Feb. 2023, https://www.bloomberg.com/news/articles/2023-02-15/pakistan-takes-key-step-on-taxes-to-get-imf-loan-avoid-default
3. “We Should all Care about Pakistan's Possible Economic Collapse” International Policy Digest, 14 Feb. 2023, https://intpolicydigest.org/we-should-all-care-about-pakistan-s-possible-economic-collapse
4. “Data | Why is Pakistan’s economy collapsing? Explained in charts” The Hindu, 9 Feb. 2023, https://www.thehindu.com/data/data-why-pakistans-economy-is-collapsing-explained-in-charts/article66482716.ece
5. “Pakistan: Desperate for IMF loan, Shehbaz Sharif govt looting public with massive taxation measures” Firstpost, 15 Feb. 2023, https://www.firstpost.com/world/pakistan-desperate-for-imf-loan-shehbaz-sharif-govt-looting-public-with-massive-taxation-measures-12156452.html
6. “Pakistan set for tax hikes in return for massive IMF bailout” The Tribune India, 14 Feb. 2023, https://www.tribuneindia.com/news/world/pakistan-set-for-tax-hikes-in-return-for-massive-imf-bailout-479649
7. “As cash runs out, Pakistan introduces bill to unlock IMF funds” Al Jazeera English, 16 Feb. 2023, https://www.aljazeera.com/news/2023/2/16/as-cash-runs-out-pakistan-introduces-bill-to-unlock-imf-funds
8. “Afghanistan Protected Against Pakistan Economic Crisis: Official” TOLOnews, 15 Feb. 2023, https://tolonews.com/business-182070
9. “Afghanistan Protected Against Pakistan Economic Crisis: Official” Baaghi TV, 16 Feb. 2023, https://en.baaghitv.com/afghanistan-protected-against-pakistan-economic-crisis-official
10. “DNA Exclusive: Pakistan Struggles to Secure IMF Bailout Package Amid Economic Crisis” Zee News, 16 Feb. 2023, https://zeenews.india.com/india/dna-exclusive-pakistan-struggles-to-secure-imf-bailout-package-amid-economic-crisis-2574172.html
11. “Pakistan edges closer to debt default as inflation, political turmoil and unrest collide” The Telegraph, 13 Feb. 2023, https://www.telegraph.co.uk/global-health/terror-and-security/pakistan-edges-closer-debt-default-inflation-political-turmoil/
