Pakistan’s economy is facing serious debt burden and looming danger of default on external loans. Yet, the Pakistani policy makers are acting more in desperation rather than focussing on structural reforms as sought by the IMF for its Extended Fund Facility Programme to help the economy overcome its Balance of Payment (BoP) crisis and shortage of foreign exchange. Pakistan is yet again making efforts to seek loans and funds from external sources as it is neither able to attract foreign investment nor find any development partner interested to loan foreign exchange to avert a default like situation.
Pak government has been compelled to resort to emergency sale of state’s assets to foreign countries, ET has learnt. The crisis is so severe that the Pak Federal Cabinet approved an ordinance to bypass all the procedures for the process and abolished regulatory checks for emergency sale of state’s public sector assets to foreign countries.
The Pakistan Federal Cabinet approved an ordinance on July 23, to bypass all the procedures for the desperate sale of state assets and abolished regulatory checks including the applicability of the six relevant laws. It has also barred the courts of the country from entertaining any petition against the sale of assets and shares of the government companies to foreign countries.
The Pakistan Federal Cabinet approved an ordinance on July 23, to bypass all the procedures for the desperate sale of state assets and abolished regulatory checks including the applicability of the six relevant laws. It has also barred the courts of the country from entertaining any petition against the sale of assets and shares of the government companies to foreign countries.
The first such approved sale of stakes pertains to oil and gas companies and government-owned power plants to the UAE to raise $ 2-2.5 billion to avoid looming default. Pak economy is facing foreign exchange crisis, steep depreciation of Pakistani Rupee, double digit inflation and a looming danger of default on external debt. There are also protracted problems like structural distortions and institutional weaknesses including corruption and policy inertia, sources who study Pak economy explained. Pakistan currently ranks No. 4 in Bloomberg’s Sovereign Debt Vulnerability Ranking, a composite measure of a country’s default risk. Pakistan’s external debt and liabilities had risen to $ 128 billion at the end of March 2022. It will have to pay $ 21 billion to international lenders for external debt servicing in the current financial year. The entire gamut of government machinery of Pakistan is now just trying to avoid default.
To achieve the Sustainable Development Goals (SDGs) in critical sectors, Pakistan would require additional annual spending of 16.1% of GDP in 2030 from the public and private sectors combined, according to the IMF. The Asian Development Bank (ADB), views that Pakistan was facing an infrastructure financing gap of about 5% of GDP. Transport sector inefficiencies are estimated to cost 4-6% of national GDP annually. The IMF funding is limited to bridge the short term foreign exchange crisis to avoid foreign debt default by Islamabad. Nevertheless, economists warn that slippage against IMF programme conditions are a risk and could quickly lead to renewed strains of burden. Islamabad’s access to market finance also remains constrained. Pakistani business leaders recently expressed concern that the country is becoming unsafe for foreign investment as the social unrest is on the horizon. They also desired that Prime Minister Shehbaz Sharif declare an economic emergency and take steps to avoid a Sri Lanka-like situation. They blame lack in continuity of economic policies for the worsening crisis, citing massive hike in State Bank of Pakistan’s recent policy rates to 15% from 7.5% in September 2021. Inflation in Pakistan touched 21.32% in June, the highest in 13 years.
There is also concern over the decreasing value of Pak currency which touched 231 against USD in open market recently. Pakistan’s Central Bank is discouraging interbank trading due to severe shortage of dollars pushing local currency to its lowest level against dollar since 1998. The State Bank NSE 1.13 % of Pakistan is concerned about selling of dollar by Pak banks at a higher premium, in the range of PKR 238-242 per dollar to energy companies, about 8% higher than official closing rate on July 20. The continuous depreciation of the PKR against the US dollar as well as crippling inflation has started to weigh heavy on the urban middle class. The crisis is so grave that even local governments including Sindh government have directed the district administration and concerned agencies to intensify action against profiteers and control food prices. According to Atif Mian, Pakistani-American economist, there has been zero increase in the average income for Pakistanis during the rule of Imran Khan and the country never got out of the crisis of the balance of payments. Mian further noted presence of rent seeking sectors like real estate and sugar. The elite capture of economy was particularly precocious and unproductive instead of leading the economic growth.
Recently, a Pakistani court declared Prime Minister Shehbaz Sharif’s younger son Suleman Shehbaz and another person proclaimed offender in a money laundering case. Credit Swisse, a Swiss Bank’s leak revealed in February 2022 information about 600 accounts linked to Pakistani citizens. Even Imran Khan and Nawaz Sharif were also alleged to have indulged in financial corruption. Pakistan is also facing shortage of several essential medicines due to surging production costs. Many vital drugs including Lithium Carbonate, the most effective medicine for treatment of several psychiatric illnesses including bipolar disorder are not available in the country for the last couple of months, ET has learnt. Pak pharmaceutical companies are bogged by rising raw material prices as well as rising logistics cost. According to a report by Michael Rubin, a senior fellow in Washington-based magazine National Interest, Pakistan, whose economy is already weak because of decades of corruption, mismanagement and unstable governance, has been particularly vulnerable due to the economic fall-out of ongoing Russia-Ukraine war. “Pakistan’s economic growth has been stunted by the inability to mobilize all its talents and resources and allocate them to productive uses,” says a World Bank study.