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Pakistan on the verge of bankruptcy

Currently, Pakistan's inflation rate has accelerated to 13.37% - the second-fastest in Asia after Sri Lanka, which recently declared bankruptcy and at present is embroiled in political turmoil. Moreover, as Pakistan repays loans to avoid burgeoning interest rates, the State Bank of Pakistan reserves have decreased by $190 million to $10.308 billion - enough to support approximately two months of imports.

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After failing to secure financial grants from its allies and the International Monetary Fund and with the overhanging burden of repayments of loans, Pakistan looks to be on the verge of declaring bankruptcy. While the incumbent government fears losing popularity by administering inflationary policy measures, Pakistan’s economy seems to have no other alternative. On top of that, former Prime Minister Imran Khan, who was ousted on the grounds of the similar claims by the opposition, threatens country-wide protests against the soaring inflation and other policy measures by what he dubs to be an “imported government.”

To avoid insolvency, last month, Finance Minister Miftah Ismail reached an agreement with the International Monetary Fund to extend the long-standing bailout program by one year and increase the loan size by approximately $2 billion. However, the agreement was subject to final modalities, and the IMF instructed Pakistan to administer steep fiscal adjustments, discontinuation of the amnesty scheme, increase fuel prices, increase power tariffs, and restore taxes before the country could expect to secure the loan. 

Read more: Daunting economic challenges of Pakistan

After the meeting with the IMF, the Finance Minister advocated revisiting the prices of petroleum products and reducing the subsidies given on them. However, PM Sharif looked set only to enforce populist measures and refused to raise the fuel prices. 

Now, as the second stench of the incumbent government’s meeting with the IMF is expected to begin in Doha next week, the incumbent government would be forced to remove subsidies on petroleum products from May 15, or the IMF is likely to default on extending a fund to support the crumbling economy. 

Currently, Pakistan’s inflation rate has accelerated to 13.37% – the second-highest in Asia after Sri Lanka, which recently declared bankruptcy and at present is embroiled in political turmoil. Moreover, as Pakistan repays loans to avoid burgeoning interest rates, the State Bank of Pakistan reserves have decreased by $190 million to $10.308 billion – enough to support approximately two months of imports. In addition, the rupee is trading at its lowest, and the bourse also witnessed one of the steepest drops in its history as it tumbled five percent in just over two months. Finally, commodity prices are also soaring, and the weekly sensitive price index that defines inflation is 15.85% up.

Read more: Shabbar Zaidi claims speech on Pakistan’s bankruptcy is being misreported

Reacting to the policy inaction of the incumbent government Asif Ali Qureshi, chief executive officer at Optimus Capital Management Ltd., said Sharif’s “inaction is taking its toll on the economy.” He added, “Political considerations are weighing heavily on the government’s ability to make tough economic decisions.”

Shabbar Zaidi, former chairman of the federal board of revenue, also tweeted, “When six months ago I said the country is ‘bankrupt’ & ‘not a going concern’ everybody criticised me. Now everything is clear.” He added that he would soon “give a comprehensive political, socio-economic road map for Pakistan.”