“At end of road”: Pak stares at economic collapse as visiting IMF officials

Islamabad:

Pakistan is grappling with a major economic crisis, with a falling rupee, rising inflation, and shortfalls in energy supplies as IMF officials visit to discuss a significant cash injection.

Prime Minister Shehbaz Sharif has held out for months against a tax hike and subsidy reduction demanded by the International Monetary Fund ahead of elections due in October, fearing a backlash.

But in recent days, with national bankruptcy looming large and no friendly country willing to offer a less painful bailout, Islamabad has begun to bow to pressure.

The government loosened controls on the rupee to rein in the massive black market in US dollars, a move that caused the currency to fall to a record low. The prices of artificially cheap petrol have also been increased.

“We are at the end of the road. The government has to make the political case to the public for meeting these (IMF) demands,” former World Bank economist Abid Hasan told AFP.

“If they don’t, the country will definitely default, and we will end up like Sri Lanka, which will be even worse.”

Sri Lanka defaulted on its debt last year and endured months of food and fuel shortages that sparked protests, eventually forcing the country’s leader to flee abroad and resign.

In Pakistan, time is of the essence, with Nasir Iqbal of the Pakistan Institute of Development Economics warning that the economy has already “almost collapsed” due to mismanagement and political turmoil.

survival crisis

An IMF delegation will arrive on Tuesday in a country in panic, still reeling from unprecedented floods that have submerged a third of its territory.

The world’s fifth-largest population has less than $3.7 billion in state banks – just enough to cover three weeks’ worth of imports.

It is no longer issuing letters of credit, except for essential food and medicines, leading to a backlog of thousands of shipping containers at the Karachi port, filled with stocks the country can no longer afford.

The industry has been hit by the import block and the devaluation of the rupee on a large scale. Public works projects have ground to a halt, garment factories have partially closed and domestic investment has slowed.

In downtown Karachi, dozens of daily wage workers, including carpenters and painters, wait with their tools on display for work that never comes.

“The number of beggars has increased and the number of laborers has decreased,” said 55-year-old mason Zafar Iqbal, who is eating biryani from a plastic bag donated by a passerby.

“Inflation is so high that one cannot earn enough.”

At the petrol pump, a widow with her son said that fuel for every few hundred rupees (75 cents) for their motorcycle was expensive, plus the couple ate only twice a day.

Ulfat, who declined to give his second name, said, “The price is so high that we eat our breakfast late and the second meal at about seven, with nothing in between.”

political disaster

Pakistan is trapped in an endless cycle of servicing external debt.

State Bank Governor Jameel Ahmed said last month that the country owed $33 billion in loans and other foreign payments before the end of the fiscal year in June.

A diplomatic offensive has seen $4 billion rolled over by the lending countries, with $8.3 billion still on the negotiating table.

Meanwhile, Pakistan is grappling with severe energy shortages – with capacity squandered by poor infrastructure and mismanagement – adding to the misery of businesses and citizens.

Last week, the entire country was plunged into a one-day blackout due to a fault in the national grid following a cost-cutting measure.

State Petroleum Minister Mussadiq Malik told reporters in Islamabad that Russian oil imports would begin in April, paid for in the currency of “friendly countries” in a mutually beneficial deal.

The faltering economy reflects the country’s political chaos, with former prime minister Imran Khan pressuring the ruling coalition to call early elections while his popularity remains high.

Mr Khan, who was ousted in a no-confidence motion last year, negotiated a multi-billion dollar loan package from the IMF in 2019.

But he reneged on promises to cut subsidies and market intervention that had exacerbated the cost-of-living crisis, stalling the programme.

It is a common pattern in Pakistan, where most people live in rural poverty, where more than two dozen IMF deals have been brokered and then broken over the decades.

Michael Kugelman, director and political analyst at the South Asia Institute, tweeted, “Even if Pakistan avoids default, the underlying structural factors that fueled the current crisis – due to poor leadership and external global shocks – will still remain.” Wilson Center in Washington.

“Barring tough, large-scale reforms, the next crisis may be just around the corner.”

(This story has not been edited by NDTV staff and was auto-generated from a syndicated feed.)