Pakistan’s economic crisis is deepening with the rupee from the last few years hitting its lowest level on record against the US dollar. Foreign exchange reserves are running out the state is holding enough to pay for vital imports such as fuel for another few weeks. The IMF has cut off funding in a standoff with the government over reforms that’s money the country needs to keep going. An IMF team will visit next week for what are expected to be tough talks. The country is currently experiencing its most severe floods in recent history. It faces deep political divisions too along with high inflation during an uncertain global economic climate.
The Current Situation in Pakistan
Once again the Pakistani rupee has tumbled against the US dollar by almost 10% and that too from a government that was promising to bring change to Pakistan. According to the Financial Times, the country is on the brink of collapse and an economic crisis which could be comparable to what happened to Sri Lanka which ran out of foreign exchange reserves. Pakistan’s foreign exchange reserves are at an all-time low and the country is trying to negotiate with the IMF which after the devaluation of the rupee has agreed to come to Pakistan to discuss its conditionalities to resume that bailout package for Pakistan but economists warned that money will not be enough to address Pakistan’s key economic problems. The industry is shutting down because energy costs have been going up. Imports are stuck at the ports because the banks will not open the letter of credit because of an acute shortage of foreign exchange particularly US dollars.People's Review on Pakistan's Economic Situation
People in 2016 -17 were happy with the amount they earned as things were affordable for them but now even if people are earning 3 times more than they earn before still it’s hard for them to survive as prices are beyond their reach. Both buyers and sellers are worried due to high inflation and devaluation of the rupee that’ll increase petrol prices and other commodities.
Unfortunately, there’s a total failed recurrent government and wrong policies which have brought the country the words of collapse. The devaluation of the rupee has hit the people hurt they’re already struggling to survive with essential commodities and they of course will be apprehensive because of the knock-on effect on the prices of essential items.
Pakistan is importing wheat which is a staple in the country because of acute shortages and this of course will mean that every essential commodity will see a price high something that the people of Pakistan can't afford.
Pakistan has been hit by a series of shocks all contributing to its economic problem. The worst floods in living memory killed around 1700 people with widespread devastation costing around 30 billion dollars. There is a deep political division between two prime ministers, Shahbaz Sharif and his predecessor Imran Khan who was ousted in a no-confidence vote blame each other for the crisis. Power outages to save money have caused chaos and hit businesses the state’s foreign exchange reserves have shrunk to just over three and a half billion dollars.
Pakistan's Abundant Control of its Currency to Meet the IMF’s Demand
Pakistan had three exchange rate policies over the last eight months which is a bad policy though. It seems that the government has decided to unify the exchange rate and make it market place. The other is for decades Pakistan was following a very bad pricing policy even though most of the energy is imported and they were selling it at below production cost for at least two decades the IMF and the world bank have been pushing Pakistan to rationalize energy prices. That’s the second thing on the table which they will require Pakistan to adjust energy prices and of course, all these things will lead to inflation. The key thing here is that this point is a bit like cancer. Anything there is no treatment without pain. So the important thing is the IMF continues to sort of press any country on that.
Conclusion
Look one needs to protect the poor from loss of income or high inflation and the rich must bear the large burden of that pain. That’s the important thing that one hopes is that the government of the day and the political system and the key stockholders can figure out a program that protects the poor while having the rich pay for the burden.
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