The New Year began on a terrible note for Pakistan. For a country grappling with economic woes, the State Bank of Pakistan's (SBP) latest figures about dwindling forex sounded a death knell. With $4.3 billion left in its coffers, the lowest reserve ever since February 2014, Pakistan has just enough to cover three weeks of imports.
That said, the numbers aren't exactly a shocker as Pakistan had been mired in a forex crisis since 2022. While the country had $16.608 billion in forex reserves by the end of January 2022, it kept plunging, thanks to heavy external debt servicing and import financing. To avoid defaulting on sovereign debt, Pakistan recently repaid $1bn commercial loans of two UAE-based banks, which further brought down their reserve to the current crisis.
Mounting economic woes
On Monday, a video had gone viral on Twitter, showing men on motorcycles chasing a wheat truck, besieging the vehicle to get their hands on its priced cargo, wheat. This isn't an isolated incident. A recent stampede in Sindh province triggered after thousands rushed forward seeing the wheat truck attests to how dire the food crisis is.
As per the data provided by SBP, inflation in Pakistan doubled from 12.3 per cent in December 2021 to 24.5 per cent in December 2022. By December 2022, it hovered around
32.7 per cent. The devastating flood came as a double whammy. During September, before the full impact of the floods set in, inflation was at a 47-year high in Pakistan.
The last five years heralded the disaster. The blue-collar workers in Pakistan have lost over 25 per cent of their purchasing power over the last five years. As for the middle lower-middle-class and lower-class citizens, their earnings is a meagre $2 a day.
Weakening currency and rising debt
Over the last weekend, the Pakistani rupee was quoted at 228.15 against the US dollar. Thanks to the country's widening trade deficit, rising inflation and inability to attract foreign investment, there is no hope in sight for the country.
As for the debt, it keeps rising. The current percentage of the debt in the GDP is 77.8 per cent, while five years back, it was 60.8 per cent. As of January 2023, the Public Debt of Pakistan is around PKR 62.46 trillion (USD 274 billion), which is nearly 79 per cent of the GDP.
The common people bear the brunt. Experts believe the impending doom was a result of flawed economic policies. In an opinion piece that appeared in Karachi-based Dawn, Maleeha Lodhi, Pakistan's former ambassador to the UN, attributes the current crisis to poor economic governance.
"Its summary of the outcome of poor economic governance is an apt description of the present economic disarray. For many decades successive governments, civilian and military, with few exceptions, pursued similar policies that contributed to or reinforced Pakistan’s structural economic problems," Lodhi writes.
Lodhi mentions the country's dependence on external financial assistance, which has it seeking funding from friendly nations rather than "finding a viable development path by relying on itself and safeguarding its economic sovereignty."
In fact, Pakistan's dependence on International Monetary Fund (IMF) is legendary. The country is currently on its 23rd IMF programme and the cycle only keeps going. The country is now pinning its hopes on the next IMF tranche, a $1.1bn loan, which is part of the $7bn loan programme the country entered in 2019 during Imran Khan's reign.
Pakistan's Prime Minister Shehbaz Sharif is also literally begging for aid from friendly countries, like Saudi Arabia and UAE for loans. While it managed to get $4 billion from both these countries, the desperation is evident in Sharif's words. "It was shameful to have a nuclear weapon in one hand and a begging bowl in the other," he said.
The country has also managed to win over $9 billion in pledges for the flood recovery at a climate conference in Geneva and Saudi was even considering investing $10 billion increasing its deposits in the country's central bank from $3 billion to $5 billion.
But, these would be like a band-aid on a bullet wound for the country. While economists moot solutions like reducing the fiscal deficit, more export to strike a trade deficit, paying off debt and bringing in foreign investment, things will remain bleak.
For these to happen, it needs a stable government, peace and security and revolutionary economic policies.