Pakistan inching closer to debt default, repeating stories of Sri Lanka and Venezuela
• Rising inflationary pressure has increased the prices of essential commodities like wheat, onions, gas cylinders etc. in Pakistan
Pakistan's economy is in dire straits as its foreign exchange reserves have fallen below $3 billion (a nine-year low) as of 9 February. According to a report by Pakrevenue, the foreign exchange reserves of the State Bank of Pakistan (SBP) declined to $2.917 billion. Simultaneously, Pakistan is facing a tough time in getting a relief package from the IMF.
The International Monetary Fund (IMF) mission led by Nathan Porter began talks with the Government of Pakistan, represented by Finance Minister Ishaq Dar, on 31 January for the ninth review of the aid package. However, no deal has been announced yet. "Virtual discussions will continue in the coming days to finalize the implementation details of these policies," the IMF said. However, as part of a $6.5 billion loan program - still not enough to fill Pakistan's empty coffers.
Pakistan's economic crisis: Here are 10 key takeaways
• The world's fifth most populous country teeters on the brink of debt default, echoing the stories of Sri Lanka and Venezuela.
• Pakistan Rupee Vs US Dollar: The Pakistan Rupee has been on a sharp decline for weeks. As per PK Revenue report, on February 11, the Pakistani rupee fell to ₹271.50 per dollar in the inter-bank market.
• Discussion on scrapping ₹5,000 note on the table: The Pakistan Business Council has reportedly suggested scrapping its highest denomination note of ₹5,000 to stabilize the economy.
• Inflation in Pakistan: Inflation in the country is at the highest level in 48 years. Foreign exchange reserves cover imports for less than a month. The Consumer Price Index increased by 27.6% in January 2023. The wholesale price index rose to 28.5% in the same period.
• Rising inflationary pressure has increased the prices of essential commodities like wheat, onions, gas cylinders etc. The average price of a 20 kg bag of wheat flour in January 2022 was Pakistani Rupee (PKR) 1,164.8. It increased by 50% to reach PKR 1,736.5 in January 2023.
• Pakistan-IMF talks fail: Pakistan and the IMF have failed to reach a staff-level agreement on a much-anticipated $1.1. The billion bailout package aims to prevent the country from going bankrupt. Pakistan's reserves have fallen below USD 3 billion and the country is feared to default on its external liabilities unless the IMF unlocks its funds for it. The availability of IMF money will survive the default but it is likely to trigger a tsunami of price hikes. Pakistan signed a $6 billion IMF program in 2019, which grew to $7 billion last year. Pakistan is in its 13th bailout from the IMF since the late 1980s.
• Petrol out of Pakistan's pumps: Most petrol pumps in Pakistan's Punjab region ran out of petrol last month, throwing normal life out of gear. The Pakistan Petroleum Dealers Association (PPDA) said, "In Lahore, about 70 out of a total of 450 pumps are dry. Areas where pumps are closed due to shortage of petrol include Shahdara, Wagah, Liton Road and Jain Mandar." Significantly, Pakistan's oil companies are on the verge of 'collapse' due to economic crisis and currency devaluation.
• Power cut: Last month Pakistan faced a nationwide power cut due to breakdown of the "national grid". Power cuts were reported in Karachi, Islamabad, Lahore and Peshawar.
• Causes of economic crisis in Pakistan: The country is heavily dependent on imports. Pakistan's imports have seen significant growth, and exports have remained largely stagnant, leading to a widening trade deficit in recent years. Pakistan's exports mainly consist of textiles and agriculture-related goods and lack technical sophistication. P
Pakistan's increasing debt: Pakistan's expenses are also increasing. The high level of borrowing led to total debt and liabilities reaching Pakistani Rupees 59,697.7 billion (89% of GDP) in FY22. China accounts for about 35% of the total bilateral debt outstanding by Pakistan as of March 2022.
No comments:
Post a Comment