Pakistan’s Economic Woes Intensify Amid Political Turmoil
Pakistan’s stock market experienced a significant decline following the arrest of Imran Khan, the chairman of Pakistan Tehreek-e-Insaf (PTI) and former Prime Minister. The arrest worsened the country’s already dire economic situation, which has been struggling since the last International Monetary Fund (IMF) agreement in July 2022.
Flawed Policies and Delayed IMF Agreement Deepen Economic Crisis
Flawed policy decisions, such as controlling the rupee rate without sufficient reserves and providing subsidies through extensive domestic borrowing, delayed the agreement with the IMF. Moody’s Investor Service, on the same day as Khan’s arrest, warned that Pakistan’s financing options beyond June were uncertain, and without the IMF program, the country could face default due to its weak reserves.
The Ministry of Finance released a statement identifying the debt amount of 3.7 billion dollars due by the end of the year. While it supported Moody’s claim that Pakistan could meet its external obligations until year-end, the ministry did not provide details on the source of these inflows. Speculations suggest funding may come from China, Saudi Arabia, the UAE, and Qatar, as well as commercial borrowing, albeit limited due to the country’s credit rating decline.
Despite assurances of pending pledges and commercial loans, the IMF insists on written commitments before declaring the ninth review a success, a condition that Pakistan has not yet fulfilled. It is widely believed that from July 1, the start of the next fiscal year, key macroeconomic indicators will deteriorate further, including a projected growth rate of 0.8 percent, increased government expenditure, and rising inflation.
Urgent Reforms and Sacrifices Needed to Stabilize the Economy
To address the worsening situation, experts suggest demanding sacrifices and implementing reforms. This would involve reducing non-operational military spending, freezing salaries, and cutting civilian expenditure. Reforms in the pension system and merging subsidies to benefit only the vulnerable are also urgently needed.
It is evident that Pakistan may need another IMF program in the future, depending on the conclusion of the ongoing one. Negotiations for such a program should involve representatives from all national parties, whether elections have been held or not.
The economy’s fragility is a cause for concern, and it is crucial for all stakeholders to prioritize addressing economic issues promptly. Additionally, efforts should be made to rebuild trust between the current economic team leaders and the IMF staff to pave the way for future cooperation.
