From climate to security, Pakistan has been facing various challenges, exacerbated by its own domestic actions and existing factors like global inflation and supply chain disruption. However, among these, the most pressing one that needs urgent intervention without any delay is its failing economy. 

The country’s trade deficit in the first 10 months (July-April) of the current fiscal year was recorded at $41 billion -- surpassing the $40 billion mark for the first time in history -- and is expected to be around $45 billion this year. The current account deficit reached $13 billion.

On Tuesday, the country’s currency recorded a steep depreciation, reaching a historic low of 212 against a US dollar. The country’s oil market companies are facing trouble getting their letters of credit cleared by global banks amid the continued volatility in the currency market. This issue, if not resolved, will certainly cause immediate havoc in the coming days. 

Plunging foreign reserves

The country’s foreign exchange reserves fell below $9 billion, which is barely enough for two months of imports. And, experts
believe,the country has little leverage now. The risk of default could be higher. 

For months, the government has been negotiating a $6 billion bailout package from the International Monetary Fund (IMF). Negotiations are really tough and Islamabad has reportedly sought assistance from the United States to not only
strike a deal but to expand both the duration and scope of the programme. 

From withdrawing the fuel subsidies, hiking electricity tariffs and reducing expenditure to increasing tax rates, Prime Minister Shehbaz Sharif’s government has gone all out at the expense of its own political capital to get the IMF programme running.

Losing support

Last month, the government banned the import of most luxury and non-essential items -- a move that will hurt the government’s tax revenues in the coming months. However, given that general elections are due next year, the coalition appears concerned about losing popular support in the wake of painful reforms.  

High global commodities and fuel prices as a result of the war in Ukraine are also driving up the import bills across the world, including in Pakistan. Other bilateral lenders like China and Gulf countries, which had earlier supported the country, are also reportedly conditioning their assistance with the IMF bailout. 

(SAM)