Geopolitics & World-affairs
Caught Between The Sky and Earth: Pakistan's Economy Is On The Verge Of Collapse?
Pakistan, which broke away from India in 1947, is facing a multifaceted crisis as a result of its ill-conceived democracy based on kleptocracy.
Pakistan is one of the most corrupt countries on the planet, with a ranking of 140 in 2022, which is equivalent to some nearly failed African and Asian states. Pakistani leaders and army generals are enriching themselves by exploiting the Pakistani people and blackmailing wealthy Western powers in the name of a nuclear arsenal.
Due to these reasons, Pakistan's economy is now standing on the doorstep of hell. Its economy is on the verge of collapsing due to a potential political crisis, a plummeting rupee and decades-high inflation, devastating floods, terrorist activities within the nation, and a significant energy shortage.
Pakistan is now pleading with other countries and international financial institutions for assistance in saving its already ailing economy. It sought loans and debt restructuring from the United Arab Emirates, Saudi Arabia, and China, but these countries refused to lend until Pakistan accepted IMF conditions for the 23rd time in its 75-year history.
In the name of Zakat, the Saudi finance minister has already refused to grant free loans to Muslim-majority countries. According to him, Saudi Arabia will make loans to countries with strings attached, and Saudi Arabia expects countries to reform the internal structure of their economies in order to repay their loans, which means no free money from now on. As a result, Pakistan is dealing with a double whammy, as Saudi Arabia was the primary contributor to Pakistan's free grant and free money begging bowl.
How bad is the economic crisis in Pakistan?
Pakistan's economy is dealing with the highest inflation rate in 48 years, at 27.6%. Its forex reserves are dwindling by the day, with the central bank of Pakistan reporting that forex reserves have dropped to $3.1 billion, with public and private sector banks holding an additional $5.7 billion.
This is very concerning news for a country that is heavily reliant on imports. As the country is been drying up of forex reserve, thousands of shipping containers are pilling up at ports, and the cost of essentials like food and energy is skyrocketing.
In February, Pakistan's food inflation reached a new high of 45.2% in villages and 39% in cities, compared to 11.8% in villages and 13.3% in cities in January.
The price of essential goods is excruciatingly getting expensive for the Pakistani poor and middle classes, because per kilogram of rice reached 146 Pakistani rupees, onion reached 320 Pakistani rupees per kilogram, chicken topped the price of 700 Pakistani rupees per kilogram, and the price of other goods is also trending. One kilogram of flour now costs 140 to 160 Pakistani rupees, and sugar prices have skyrocketed. Everyday necessities are becoming increasingly expensive.
Meanwhile, the International Monetary Fund pressed Pakistan's government to impose an additional tax burden on the Pakistani people as a condition for providing a $7 billion Extended Fund Facility. This tax will significantly increase the cost of goods, which is already high.
IMF and its condition to extend the $7 billion extended fund facility:
The international monetary fund is negotiating the deal with the Pakistani government for the 23rd time and it already junks Pakistan's revised debt management plan, calling it "unrealistic".
According to the International Monetary Fund, Pakistan's debt will remain unchanged, and the country will be forced to carry on the old debt alongside the new one, and they will have to pay it all in the meantime.
According to unconfirmed reports, the IMF is considering forcing the Pakistani government to levy an additional 400 to 600 billion Pakistani rupees tax on Pakistanis. IMF and Paksitani Foreign ministry will work on the fiscal front after which additional taxation measures will be finalized.
As a result, the effect has begun to manifest: the electricity tariff will rise again in the range of Pakistani rupees 11 to 12.50 per unit in order to limit the additional subsidy of Pakistani Rs. 335 billion for the current fiscal year.
Pakistan is also experiencing a fuel crisis; after removing a currency cap, fuel became 16% more expensive. One liter of petrol costs Rs. 249.80 in Pakistan today, while diesel costs Rs. 262.80. Cooking gas has also reached nearly 10,000 Pakistani rupees. Pakistanis can't afford gas right now, so they make plastic LPG balloons, which are extremely dangerous due to fire hazard risks.
According to the world bank report Pakistan's economy is Asia's weakest-performing economy, most synonymous with failed stats.
Flooding in Pakistan also wreaked havoc on the country's already ailing economy:
Even before the flooding, Pakistan's economy was experiencing difficulties. Following the flooding, the Pakistani economy has become the world's liability, and some Western, Middle Eastern, US, and China have pledged to lend Pakistan 9 billion dollars for infrastructure development. The proposed funds will be released when Pakistan announces any new infrastructure developments otherwise the money will not come to Pakistan. Therefore, The pledges will not provide immediate relief to the Pakistani economy, nor will they provide leverage in reaching a deal with the International Monetary Fund. According to Pakistan's central bank, Pakistan immediately needs $16 billion to recover from widespread devastation caused by floods. More than 35 million Pakistanis were affected due to the flood and flood water is still not receding,
Debt-Crisis of Pakistan:
According to the World Bank, Pakistan's total external debt stocks increased to $130.433 billion by the end of 2021 from $115.695 by the end of 2020.
Pakistan's debt-to-GDP ratio is currently 71%, and 40% to 50% of government revenue is set aside for interest payments this year. Pakistani bonds are losing value by the day, and they are now worth half of what they were when they were first issued.
For the interest payment this year, around $23 billion of Pakistan's $27 billion in bilateral debt is made up of Chinese loans.
Pakistan will have to pay $73 billion in foreign debt by 2025, which will be an impossible task for the Pakistani government, which lives paycheck to paycheck. Therefore, Pakistan can't survive with the $7 billion they need at least $100 billion to survive.
Can Pakistan withstand its current political crisis and state-sponsored terrorism policy?
In Pakistan, no government has ever served out its full term due to army interference. The army deposed Imran Khan's government in 2020, and a new government led by Shahbaz Sharif took its place. Since then, both of them are fighting tooth and nail to humiliate each other.
And Pakistan's never-ending policy of state-sponsored terrorism is now biting them back, with terrorists stalking the Pakistani army and government at all hours of the day and night.
The Peshawar suicide bombing is a recent example of that, in that bombing 101 innocent people lost their life. Pakistan is also dealing with terrorism in Balochistan, where the Pakistani army has been brutally killing Baloch people since its occupation in 1951.
Finally, one word that describes Pakistan is failed state. The Pakistani economy is already bankrupt, but nations that find juice in Pakistan are attempting to keep the country alive, which is in ventilation.
The United States and its western allies are the most interested countries; these countries require Pakistan to control the Central Asian region alongside Iran, which has become an Achilles heel for western nations since the establishment of Islamic rule by Ayatollah Khomeini.
Pakistan is a liability to the West, and the West has no economic interest in Pakistan; it only exploits the country for geopolitical reasons. As a result, it is the responsibility of Pakistani youth to rebuild their country, but youth are fleeing the country. According to the Bureau of Immigration and Oversight, 8 lakh skilled Pakistanis left the country this year.