Pakistan is, as is known, in a financial crisis and staring at bankruptcy. According to available sources including the Economic Times, the current currency reserve is the lowest in the last 8 years with only $5 billion and the economy of Pakistan is marked with high inflation and shortages of foods including flour leading to protests. The current forex reserve can cover imports over only a month while it has to pay $8.3 billion to external debtors in the next three months. The country is making efforts to get bailout support from international lenders including International Monetary Fund to solve the crisis. But international lenders are refusing to give funds to Pakistan making it difficult to recover from the economic crisis.
Notably, the economy of Pakistan is worsening for years. It experienced another economic crisis in 2019 and received bailout support. Its economy is currently on the verge of collapse because of several economic management based, political and other causes. Lower GDP growth, energy deficit, trade deficit, economic mismanagement, corruption and the 2022 flood are some important causes. The unprecedented floods inundated a third of Pakistan and halved its growth heavily affecting its economy, which was notably affected by the pandemic. Besides, political crisis, as indicated, caused the value of the rupee to drop significantly and inflation to reach its highest levels in decades. Transnational factors including the global energy crisis and rising global inflation driven by the Ukraine war are also important causes.
Pakistan, which has an external debt of more than $100 billion and is required to repay $33 billion in 2023, has managed promises from several sources for financial support including the Islamic Development Bank and Saudi Arabia. But it is yet to get the bailout support from international lenders including the IMF, despite its efforts for several months, because of several causes including its failure to keep its promises to the IMF when the Extended Fund Facility agreement was made between Pakistan and the IMF in 2019 and meet the latter’s other demands including assurances from Pakistan on increasing energy rates, imposing more taxes and artificial control over the exchange rate, failure to repay loans and ineffective negotiation.
The financial crisis, if continues, can lead to humanitarian and health crises. It is desired that Pakistan gets bailout support from the International Monetary Fund and/or other financial institutes to avert the possible collapse of its economy. Effective negotiation efforts of Pakistan with international lenders including the IMF, a team of which will visit Pakistan in the next week, is important to manage bailout support. But better management of its economy by addressing the economic and other causes of its economic downturn is imperative to reduce the chance of its financial crisis. Here, its political problems, which are one of the main causes of its repeated economic instability, also need to be well-addressed.
Amir M Sayem
Chief Editor
Dhaka Opinion Magazine
