Pakistan economic crisis: Debt mounts, forex falls, inflation at 48-year high. 10 key takeaways

The International Monetary Fund (IMF) mission, led by Nathan Porter, began talks on January 31 with the Pakistan government represented by Finance Minister Ishaq Dar for the ninth review of the assistance package. However, no deal has been announced so far. “Virtual discussions will continue in the coming days to finalize the implementation details of these policies,” IMF said. However, the amount on the table -part of a $6.5 billion loan program — is still far from enough to replenish Pakistan’s depleted coffers.

Pakistan’s economic crisis: Here are 10 key takeaways

• The world’s fifth most populous country has edged closer to a debt default, echoing the tales of Sri Lanka and Venezuela.
• Pakistani Rupee vs US Dollar: The Pakistani Rupee has been on a steep slide for weeks. The Pakistani Rupee fell on 11 February fell to ₹271.50 per dollar in the inter-bank market, PK Revenue reported.
• Discussion to discontinue ₹5,000 note on the table: Pakistan Business Council has reportedly suggested discontinuation of its highest denomination banknote ₹5,000 to stabilise the economy.
• Inflation in Pakistan: The country’s inflation is at a 48-year high. Foreign currency reserves cover less than a month of imports. The Consumer Price Index index increased by 27.6% in January 2023. Wholesale Price Index has increased 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 cost of a 20kg wheat flour bag in January 2022 was Pakistani Rupee (PKR) 1,164.8. This shot up to PKR 1,736.5 in January 2023, a 50% rise.
• Pakistan-IMF failed talks: Pakistan and the IMF have failed to reach a staff-level agreement on a much-needed $ 1.1. billion bailout package aimed at preventing 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 avoid the default but it is feared to bring a tsunami of price hikes. Pakistan inked a $6 billion IMF programme in 2019, which last year expanded to $7 billion. Pakistan is in its 13th bailout from the IMF since the late 1980s.
• No petrol in Pakistan’s pumps: Most of the petrol pumps in the Punjab region of Pakistan ran out of petrol disrupting the routine life of people last month. The Pakistan Petroleum Dealer Association (PPDA) said, “In Lahore, around 70 of the total 450 pumps are dry. The areas where the pumps are closed due to shortage of petrol include Shahdra, Wagah, Litton Road, and Jain Mandar”. Notably, the oil companies of Pakistan are on the verge of ‘collapse’ due to economic crisis and currency’s devaluation.
• Power outage: Last month Pakistan suffered nationwide power outages due to the breakdown of the “national grid”.Outages were reported in Karachi, Islamabad, Lahore, and Peshawar.
• Reason for the economic crisis in Pakistan: The country is heavily reliant on imports. Pakistan’s imports have seen a significant rise, and exports have remained largely stagnant, widening the trade deficit in recent years. Pakistan’s exports mainly comprise textiles and agriculture-related goods and lack technological sophistication. P
• Pakistan’s risisng debt: Pakistan’s expenses are also rising. Due to high levels of borrowing, total debt and liabilities reached Pakistani Rupee 59,697.7 billion (89% of the GDP) in FY22. Of the total outstanding bilateral debt owed by Pakistan as of March 2022, China accounts for about 35%.