Image Source: India TV News
Pakistan is seeking assistance from the International Monetary Fund (IMF) in a last-ditch effort to halt an economic crisis that is worsening and has nearly depleted the country’s foreign exchange reserves.
It need more funds to cover ordinary imports for more than a month, and it is struggling to repay its massive foreign debt.
After ten days of talks with the government, an IMF delegation will leave the country on Thursday. The discussions aimed to free up significant international money.
In Pakistan, yearly inflation reached more than 27% in January, the highest level since 1975. People are increasingly concerned about the economy in this crucial election year.
This week, the rupee fell to an all-time low of 275 to the dollar, down from 175 a year earlier. Because of this, things in Pakistan cost more to buy and pay for.
Pakistan’s need for foreign money is one of its most important problems.
Faisalabad is the center of industry in Pakistan. It is where factories like Jubilee Textiles are located. This wasn’t because Pakistan had frequent power outages for years but because they needed more money to buy the things they needed.
The printing machines at Jubilee just turned back on after being turned off for a month. So when the BBC went there, there were stacks of white cotton sheets in iron tubs with a thin layer of brick dust. The only sound was an industrial washer’s drip, drip.
As Fahim walked through the network of frozen machines, he said that the factory had run out of the dyes they bought from China, not because they weren’t available, but because it would take their bank weeks to clear the money to pay for them.
Analysts say that behind the scenes, the government kept the bank’s exchange rate artificially high, which made it hard for dollars to get into the system. Then, at the end of last month, they let it go down, which could help some businesses raise their prices.
Businesses and industries all over Pakistan said they had to slow down or stop working because they were waiting for goods that they had imported but were still stuck in ports.
At the end of January, a government minister told the journalists that there were more than 8,000 containers in Karachi’s two ports. Food and medicine were put in these containers. Local news reports say that some of that is starting to move, but a lot of it is still stuck.
Multiple problems at the same time
Pakistan, like many other countries, is struggling because of the COVID pandemic and Russia’s invasion of Ukraine, which has caused fuel prices to skyrocket everywhere. Pakistan buys a lot of fossil fuels from other countries, and the price of importing food has also increased.
If the rupee goes down, the fuel price goes up, affecting how goods are moved or made. For example, fuel prices increased by more than 13%, but the government doesn’t plan to do it again.
Add to this the damage from last year’s floods, which the UN says cost more than $16 billion. Huge parts of Pakistan were flooded, which destroyed farmland and made it hard for the country to grow food. Wheat and onion prices have gone through the roof because of this.
This happens when politics are uncertain and tense, and a vote is coming up at the end of the year.
Pakistan has also been helped in the past. Pakistan has been trying for a long time to stop giving subsidies to people who vote for the government and to get its economy to stay stable, but it hasn’t been able to do either.
Is Pakistan heading in Sri Lanka’s direction?
Imran Khan took office in 2018 after being fired as Pakistan’s prime minister in April 2017. He promised to fix the economy. At the time, he said he wouldn’t ask the IMF for help, but inflation went up, and the rupee went down.
In the end, he worked out a deal with the IMF for a $6 billion bailout to fix the balance of payments crisis.
People are talking about the next $1.1 billion of this. It was supposed to be done in November, but talks have repeatedly been stuck.
The government and PTI, Mr. Khan’s party, have had disagreements with the IMF. However, now that the country’s foreign reserves are so low, both sides agree that Pakistan needs to agree to get the money.
Pakistan says it has been hard to talk. Last week, Prime Minister Shehbaz Sharif said that the organization was hard on Pakistan’s finance minister.
In an interview last month, Mr. Khan said that Pakistan could end up like Sri Lanka, which ran out of money last year and couldn’t buy food, fuel, and other necessities. This led to a popular uprising that got rid of the president.
IMF holds the cards at the moment
So, could things get better for Pakistan? Simply put, the country needs more money and needs it soon if it wants to keep the lights on.
As it gets warmer and more people run fans and air conditioners with electricity, the energy will go up. This will pressure the system and Pakistan’s almost-empty foreign reserves.
The question is how long a deal to save the country this time would keep it going.
To try to reach a deal, politicians might have to make painful promises, such as getting rid of energy subsidies.
Read Also: Pakistan cuts power as national grid collapse
Mr. Hussain says that making a deal with the IMF will help the economy and the country, but it will hurt regular people. But he thinks the biggest risk is that the government will agree with the IMF, start implementing the plans and then change its mind.