Hi, this is Hot Mic and I’m Nidhi Razdan.
Pakistan is lurching from one crisis to the next. There was the long drawn out political crisis with Imran Khan refusing to leave the prime minister’s chair until he finally had no choice and Shehbaz Sharif was sworn in as PM. But the country is now staring at a huge economic crisis. Pakistan faces $6.4 billion in debt due over the next three years as Prime Minister Shehbaz Sharif’s new government is trying to meet bailout terms set by the International Monetary Fund.
In fact, Pakistan has been to the IMF 22 times in the past seeking a bailout. But real efforts at reform have been missing, which is why they keep going back. Pakistan’s foreign currency reserves are currently depleting. They have halved in less than a year. And the country is in dire need of $36 billion in foreign financing in the next fiscal year that starts now, in June.
According to data from 13 countries compiled by Bloomberg, Pakistan is the worst performer in Asia, with its rupee dropping by almost 8% in the last month. The country is desperately negotiating a bailout package with the IMF and other countries to keep its economy afloat and avert a default. But getting an IMF loan comes with strict conditions, which Pakistan has found difficult to fulfill in the past.
That includes reducing the budget deficit, improving banking and tax legislation, strengthening the social safety net for poor households, phasing out electricity subsidies and reducing foreign exchange market intervention by the federal bank. The current economic crisis in Pakistan is primarily attributed to its extensive spending on non-developmental and economically unviable projects.
Experts, for example, have cited futile infrastructure projects like the Gwadar-Kashgar Railway Line Project through long term debt instruments and relying massively on external borrowing rather than from domestic institutions. All of these have added to Pakistan’s troubles. The rollout of the China-Pakistan Economic Corridor, CPEC increased the debt burden on Pakistan, opening the doors of ever increasing external loans. Notably, CPEC also created a Chinese debt of $64 billion on Pakistan, which was originally valued at $47 billion in 2014.
The persistent fall in the Pakistani rupee against the US dollar has further contributed to the ballooning external debt. A bailout by the IMF has become critical as countries that have typically been generous lenders towards Islamabad are proceeding more cautiously now. The problem is that countries that were willing to bail out Pakistan earlier are not willing to do so any longer until Pakistan makes solid progress with the IMF. When Pakistan went through a similar economic crisis in 2018, the nation was able to secure backing from China, Saudi Arabia and the UAE before it went to the International Monetary Fund.
But on the 28th of May this year, Pakistan’s finance minister admitted that the country had asked Saudi Arabia, the UAE and other countries for help. And while they were ready to give Pakistan money, all of them said that Pakistan needed to go to the IMF first.
Pakistan’s government took a bold and unpopular step last week, increasing local fuel prices in order to meet a key condition set by the IMF for reviving its bailout program. It, however, led to an immediate political backlash from Imran Khan who said in a series of tweets that the fuel price hike was the highest in the country’s history and that Pakistan’s government has not pursued a deal with Russia for 30% cheaper oil. The government was already mulling gas import deals with several countries, including Russia.
Now, as the economic crisis deepens, it has emboldened Imran Khan to take on the Sharif government. He wants elections to be called immediately. Though, elections are only due by the summer of 2023. The other big question is – what will the all powerful military do? There is speculation that it may pull the plug on Shehbaz Sharif as he implements the unpopular demands of the IMF on the people of Pakistan. So the next few months are going to be politically and economically turbulent for the country, once again.
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