Pakistan is on the Verge of Declaring Bankruptcy as the Country's Economic Situation Intensifies

             Despite ongoing talks between Islamabad and the International Monetary Fund (IMF) to recommence the USD 6 billion rescue package from the IMF, Pakistan is on the edge of bankruptcy as the country's economic status is facing a dismal future with no immediate bright outlook.

 

As of June 21, the Pakistani Rupee (PKR) had crossed the 212 USD mark. Pakistan, on the other hand, has fewer than six weeks' worth of import coverage left and its foreign exchange reserves have critically declined. Currently, the reserves are less than $9 billion, according to a Pakistan Tribune report.

 

Over the past year, the value of the Pakistani rupee has plummeted by a staggering 34% (or PKR 53.67). In June of the previous year, it ended at PKR 157.54. With a decline of around 16.5 percent (since December 31, 2001) against the US Dollar, the Pakistani Rupee has thus become Asia's "worst-performing currency in 2022," ranking last among a group of 13 peers that also includes the Japanese Yen, South Korean Won, and Bangladeshi Taka.

 

The value of the Pakistani rupee (PKR) is declining as Pakistan struggles with a growing current account deficit and as the State Bank of Pakistan (SBP) holds reserves at their lowest level since November 2019. The coalition government led by Shehbaz Sharif has increased fuel prices for the third time in the past month to comply with IMF "conditions" to resuscitate the bailout, adding to the country's economic and population issues.

 

As a result of the recent fuel price increases, there have been rumors of cab services, restaurants, and home delivery services closing. Since May 26, the price of gasoline in Pakistan has increased by 56%, or PKR 84 (current price: PKR 233 per liter), and the price of high-speed diesel has increased by a staggering 83% (current price: PKR 263 per liter). This has put additional pressure on the general populace.

 

According to a report in The Gulf News, the government has taken these drastic steps to desperately revive the IMF programs, which is crucial for Pakistan's economy as many believe that this would bring more foreign lending and improve foreign exchange reserves that have decreased by more than 50% in the last 10 months.

 

The price increase for petroleum goods was announced by Pakistan's Finance Minister, Miftah Ismail, who said that the country was forced to "pass on the impact of world prices" to its citizens. Prime Minister Shehbaz Sharif accused the previous government of Prime Minister Imran Khan of policies that "hurt the economy" and led to the recent increases in fuel prices, which have exacerbated the political unrest in the nation.

 

However, Khan criticized the coalition government for "caving into the pressure from the IMF" and forewarned that these price increases would ultimately prove "bone breaking" for Pakistan's salaried class.

 

Khan has urged people to intensify their opposition to the "imported administration" and called for widespread demonstrations against the growing cost of food and petrol. He also warned that further price increases and inflation were on the way.

 

The Shehbaz Sharif-led administration is currently faced with two major obstacles: stabilizing the economy of the nation and maintaining popular support in the run-up to Pakistan's next general elections. Sharif is aware that Imran Khan has additional means through which to attack the coalition administration in addition to his ongoing complaints about being "controversially" removed from office in April of this year. The quick restart of the IMF's financial programs might therefore save face and deliver some economic stability to Pakistan, which could be projected as a victory for the coalition government in the next elections. In a survey conducted by the Islamabad-based Institute for Public Opinion Research (IPOR), 43% of respondents expressed dissatisfaction with the state of the economy under Imran Khan's leadership of the Pakistan Tehreek-i-Insaf (PTI), while 33% thought it had improved (Aug 2018 – Apr 2022). At the same time, 55% of respondents urged the current administration to curb inflation.

These data imply conflicting opinions about the economic strategies of the two regimes. The potential renewal of the IMF financial programs and apparent support from the military establishment, primarily to bring economic stability to Pakistan, are the main positive developments for the Shehbaz Sharif-led administration. Furthermore, according to sources in Pakistani media, China has indicated a willingness to offer Pakistan new commercial loans totaling more than USD 2 billion.

 

Beijing is upset by Pakistan's following government's poor economic management, which has slowed the development of projects related to the China-Pakistan Economic Corridor (CPEC).

 

China may use new loans and exorbitant interest rates to further ensnare Pakistan in its infamous "debt trap" approach. Islamabad's dependence on Beijing in both financial and geopolitical terms would only grow as a result of this.

 

Rising prices for food and gasoline, a lack of basic necessities, the closure of small enterprises, and an intensifying political crisis might cause Pakistan to "default" for the "second" time in its history. The IMF program's restart and emergency loans from friendly nations won't ease Pakistan's economic troubles permanently.