​Not many bailout options for the embattled economy of Pakistan

The current situation of Pakistan is arguably the most difficult faced by the country in last two decades. Simultaneously confronting the trinity of economic crisis, political chaos and rising number of terror attacks along north western areas have drained the resources of the South Asian country. Among these, the economic deterioration has a direct bearing of public welfare and fate of the present government.

The catastrophic floods of 2022 came a severe blow to the cash-strapped nation  already grappling with high debt. According to a report of the country’s planning commission, agriculture, food, livestock, and fisheries sectors lost $3.7 billion in the floods with long-term losses estimated to be around $9.24 billion. The recorded headline inflation in the country stood at 24.5% in December 2022, almost double of a figure of 12.3% one year ago. Most pinching for the common people is historically high price of flour due to worst-ever wheat crisis in the country. Many areas in Khyber Pakhtunkhwa, Sindh, and Balochistan provinces have even witnessed stampedes for the grain and flour. Analysts fear that the crisis may soon take petroleum products and basic essential items under its fold. Some experts also hint at possible rationing of petrol and diesel in the next two to three months, ultimately hitting the trade and industry and even the agricultural sector, which needs diesel during the harvesting season.

Traditionally, the twin deficits of the budget and balance-of-payments have been managed by Islamabad by reaching out to bilateral benefactors and multilateral institutions. About half of the $7 billion loan, extended by the International Monetary Fund (IMF) in 2019, has already been disbursed. While a delay in the release of next IMF tranche is exacerbating the problem for the country, the International agencies now contend that the country’s problems are outcomes of governments constantly living beyond their means without raising domestic resources.

In  absence of any inflows from the IMF or friendly countries, the forex reserves with country’s central bank dropped to $4.34 billion in the week ending Jan 6 which is the lowest since February 2014.

According to analysts, the reserves are not even enough to pay for one month of imports. Already plummeting growth rate of GDP had made it difficult for Pakistan to service debt of $274 billion, which was nearly 80% of GDP at the end of 2022. Over the past year, the Pakistani rupee has shed over 20% to trade at 229.85 per dollar (Jan. 20), making imports costlier.

The government felt some relief on January 9, 2023 when donors pledged over $9 billion to help with flood recovery efforts. However, further clarity is needed on the nature and schedule of this help. Similarly, on January 12, the United Arab Emirates agreed to roll over $2 billion owed by Pakistan and provide the country with an extra loan of $1 billion, helping it to avoid immediate default. However, these short term fixes cannot be a replacement of next IMF installment which the country needs badly. The US has confirmed its ‘concern’ about Pakistan’s economic instability with its State Department spokesperson Ned Price saying said stating that “This is a challenge that we are attuned to,”. There was no further indication from Washington of any possible help in expediting the release.

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