Experts have pointed out Pakistan’s need to undergo deep structural reforms to avoid recurring cycles of loans and knocking at the IMF's doors
Pakistan recorded an annual trade deficit of around $48.3 billion—the highest in its history—as import bills skyrocketed to $80 billion in the Financial Year 2021-22 despite the government imposing import control measures. High global prices of commodities and fuel pushed the country to a record and unsustainable deficit.
Data released by the Pakistan Statistical Bureau (PSB) on Monday showed the imports surged to a record $80 billion, surpassing the $55 billion set target and recording a growth of 55 per cent. Last year, the trade deficit was at around $31 billion.
Exports in the same period were $31.7 billion, recording an impressive 26 per cent growth against the $25 billion recorded in the FY2020-21. Significantly, the import control measures, taken by the new government in the last month of FY 22, had little effect as the import bills were recorded at around $7 billion.
This could be explained as nearly 53 per cent of import goods being intermediary, gains, and agricultural goods—which can’t be cut back—while another 25 per cent is fuel imports, which the government could do little to change. This leaves the manoeuvring space to just 22 per cent of imports, which obviously will have little impact on overall bills.
The country’s foreign exchange reserves as the result of the huge deficit have fallen to almost half of the $20 billion recorded in August last year. Currently, the government has been in talks with the International Monetary Fund (IMF) for reviving a $6 billion package, which was stalled since 2020.
Pakistan could be heading towards certain bankruptcy if it fails to secure an IMF deal. And, even though that deal would not be enough to solve the crisis, it would also open the way for other allies like China, Saudi Arabia and the United Arab Emirates (UAE) to extend loans.
Experts have pointed out Pakistan’s need to undergo deep structural reforms to avoid recurring cycles of loans and knocking at the IMF's doors.
“Pakistan’s proclivity to live beyond its means, punch way above its weight, and indulge in expensive foreign policy adventures are all coming home to roost,” wrote Sushant Sareen, a senior fellow at the Observer Research Foundation.
“There is a sense that, if Pakistan tides over the current crisis, all will be well. It might well be so, but only for a couple of years. After that, it will be back to square one.” he said, adding, “The trouble is no one in Pakistan is ready to bite the bullet of deep, sweeping structural reforms that will put the country on a sustainable glidepath.”