Pakistan: Chaos, Crisis, Catastrophe: Analysing And Understanding The Reasons Behind Pakistan's Economic Decline: Can It Revive From Here?

Pakistan is experiencing its worst economic crisis in 75 years, and none of its friendly ally nations are reaching out to assist this country in desperate need of dollars to export essential goods. Pakistan requires dollars because it is an import-heavy country.

China, the country's most trusted ally, is even wary of lending more money to Pakistan because China nearly lost its entire investment in the China-Pakistan Economic Corridor due to rampant corruption in every sector of government.

China recently announced the temporary closure of its Consular Service Halls in Pakistan. Saudi Arabia, the United Arab Emirates, and other Middle Eastern countries also denied extending any loans to the Pakistani government due to Pakistan's previous loan extension noncompliance. 

In desperation, Pakistan went to International Monetary Fund for only $1.1 billion. To extend the loan money to the Pakistani government, IMF send a team led by Mr. Nathan Porter to visit Islamabad from January 31 – February 9 to hold discussions under the ninth review of the authorities’ program supported by the IMF Extended Fund Facility (EFF) arrangement.

Mr. Porter issued statements at the end of his visit, advising the Pakistani government to tighten control over the country's fiscal measures in any way possible, and then they will extend the proposed financial assistance when these measures are implemented holistically. 

To comply with the IMF's words, Pakistan first removed artificial circulation over its currency. After removing the restriction, the Pakistani rupee fell like a pack of cards, reaching 276.88 per dollar. After a brief dip, it is now trading at 262.50 per dollar. 

The government of Pakistan then introduced the Financial (Supplemental) Bill, 2023, or the so-called "mini-budget," on Wednesday by the country's finance minister, Ishaq Dar, to raise an additional Pkr. 170 billion in the next four and a half months to meet the last prior actions agreed upon with the International Monetary Fund (IMF) to secure early disbursement of approximately $1.2 billion installment. 

The government of Pakistan then introduced the Financial (Supplemental) Bill, 2023, or the so-called "mini-budget," on Wednesday by the country's finance minister, Ishaq Dar, to raise an additional Pkr. 170 billion in the next four and a half months to meet the last prior actions agreed upon with the International Monetary Fund (IMF) to secure early disbursement of approximately $1.2 billion installment.

In the budget, Pakistan's Finance Minister amends the country's tax on some goods, but essential items are exempt from the new tax regime. 

Amendments to the sales tax act: 

Sales tax on general items has been increased from 17% to 18%. 

The finance bill proposes raising GST or sales tax from 17% to 25% on 33 categories of goods across 860 tariff lines, including high-end mobile phones, imported food, decoration items, and other luxury goods.

Sales tax or GST on mobile phones worth more than $500 will be set at 25%, up from 17% previously.

The tax on domestic coal will be raised by 1%. The sales tax on locally produced coal was 17% or Pkr. 700/tonne, whichever was greater; it will now be 18% or Pkr. 700/tonne, whichever is greater.

The government has also amended the present income tax structure to impose more burden on government employees and the rich.

Amendments to Income Tax Ordinance:  

In order to acquire capital assets, Pakistanis must now pay a 10% advance tax on the gross market value of the purchased consideration. The government must enact such regressive measures to prevent Pakistanis from engaging in unseen or grey transactions, which are common in Pakistan because Pakistani constitutional entities are themselves involved in corrupt practices such as these.

An additional 10% advance tax on all functions and gatherings, including weddings and seminars, will be levied to increase tax revenue from 1 billion Pakistani Rupees to 2 billion Pakistani Rupees.

Excise duties on non-essential goods have also been raised, so the Excise Duty Act has been amended. 

Amendments to the Federal excise act:  

The Pakistani government has proposed Federal excise duty on several goods including aerated water, cigarettes, soft drinks, and others. 

The excise on aerated water is proposed to be raised from 13% to 20% in order to raise approximately 10 billion Pakistani rupees in tax revenue.

The tax on cigarettes made in the country has also been raised. The federal excise duty (FED) on expensive brands has increased from Pakistani Rs 6.5 to Pakistani Rs 16.5. The per-stick increase for less expensive brands ranges from Pakistani Rs 2.55 to Pakistani Rs 5.05. 

The excise duty on sugary drinks, like lemoned, has increased to 20% from 13% to fetch additional Pakistani rupees of 10 billion. 

The duty on cement has increased from Pakistani rupees 1.5 per kg to 2.0 Pakistani rupees per kg to fetch additional 6 billion Pakistani rupees. 

Unbearable life conditions in Pakistan: 

Pakistanis are struggling to live peacefully as the cost of essential goods rises, increasing the cost of living in Pakistan.

A family of four's cost of living in 2021 was approximately 2,23,374 Pakistani rupees, but it is now approximately 3,75,374 Pakistani rupees. For a single person cost of living was approximately 67,463 Pakistani rupees, but it is now approximately 1,55,776 Pakistani rupees. 

In Pakistan, a kilogram of onion costs between 220 and 240 Pkr, but only 30 to 40 Indian rupees in India. Wheat flour costs 150 Pkr per kilogram, and in some areas of Pakistan, it can even cost 180 Pkr. Rice prices have risen to 140 to 180 Pakistani rupees per kilogram, while edible oil has risen to 450-480/liter. A kilogram of chicken costs 700 to 800 Pakistani rupees, a kilogram of tomatoes costs 110 to 140 Pakistani rupees, a dozen eggs costs 400 Pakistani rupees, and a kilogram of mutton costs 1,100 Pakistani rupees. 

Pakistan is in the grip of a severe forex reserve crisis. The country's foreign exchange reserves fell from $21 billion in 2021 to around $2 billion this month. Due to the forex crisis, the country is facing an energy crisis because the country is highly dependent on fuel imports from middle eastern countries. 

Due to the oil crisis, Pakistan has been forced to shut down its largest refinery, and the fuel price has reached an all-time high following the announcement of the mini-budget. The petrol price has been increased to Pkr. Rs. 272 per liter after an overnight increase of 22.20 Pakistani rupees. the fuel price was already on the high side after the devaluation of the Pakistani rupee. 

The price of high-speed diesel has been increased to 280 Pakistani rupees per liter after a hike of 17.20 Pakistani rupees. Kerosene oil will now be available at 202.73 Pakistani rupees per liter following a hike of 12.90 Pakistani rupees per liter. Meanwhile, the price of light diesel oil has reached 196.68 Pakistani rupees per liter after an increase of 9.68 Pakistani rupees per liter. 

Looking at these parameters, all global financial institutions are downgrading Pakistan's ranking on all parameters, and they see these issues as the cause of the economy's total collapse.

Global Institutions Ranking:  

According to Moody, Pakistan's inflation has reached 33%, an all-time high in the country's history, and it is expected to rise further in the near future. 

Another Financial institute, Fitch has downgraded Pakistan's rating from CCC+ to CCC-. They did it because Pakistan's Forex reserve is under tremendous pressure, the country's current account deficit is widening, and the country is going through political turmoil. 

As a result of these ranking parameters, investors will lose confidence in investing in Pakistan, and existing investors will and are leaving the country. Toyota and other car manufacturers have already stopped producing cars in Pakistan and they are planning to shift assembly to other neighboring nations. 

Pakistan is facing several challenges within the nation and these challenges will not go away if the nation will not work hard together like Japan did after it was nuked by the United States. 

In Pakistan, one of the government's challenges is malnutrition. In this food scarcity scenario, malnutrition is on the rise, reaching a staggering 42%. The unemployment rate in the country is rising, giving rise to new issues such as robbery, rape, and murder. 

Apart from that, the country's terrorism is on the rise as a result of Tehrek-e-Taliban Pakistan's continuous terrorist attacks. The Peshawar mosque bombing killed 100 police officers, and the Karachi police station attack tomorrow killed 5 men and injured many more.

As a result, Pakistan must take calculated steps to keep its country away from defaulting. If their economy fails, they may experience balkanization similar to the Soviet Union.

Read more: Another Death Nail In Pakistan's Coffin: Pakistan's oil industry is on the verge of "collapse" due to a liquidity crisis 

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