Melting reserves, currency shock and corruption: Pakistan’s economy is on the brink of collapse

Pakistan’s Prime Minister Shahbaz Sharif said the International Monetary Fund (IMF) had given his country “tough times” regarding the aid package during the “unimaginably difficult” economic crisis.

“Our economic situation is unimaginable,” the Prime Minister said, adding: “The conditions we have to meet are beyond imagination. But the country has no choice but to accept them, ”he admitted.

The rupee, which has experienced heavy losses in recent weeks following the Prime Minister’s speech, posted record falls against the dollar. The IMF representative in Pakistan did not immediately respond to a Reuters request for comment.

Pakistan only has enough foreign exchange reserves to cover imports for about three weeks. Pakistan is also close to China and is deeply in debt to China. According to the IMF, more than 30 percent of Pakistan’s total foreign debt is with China.

Melted RESERVES

According to Euronews, Pakistan, whose Central Bank reserves have fallen to $3.7 billion, is in talks with the IMF to release a $1.1 billion loan to avert the economic crisis.

A delegation led by the IMF’s Chief of Mission in Pakistan, Nathan Porter, continues to discuss the ninth assessment meeting with Pakistani officials in the capital, Islamabad.

Stocks, which have fallen to the lowest level since 1998, are not enough to cover the cost of three weeks’ worth of imports.

FUEL PRICES RISE

The IMF is asking Pakistan to raise energy prices to contain the budget deficit and limit additional subsidies in the fiscal year. These demands led Pakistan to abandon its currency at market-based exchange rates and increase fuel prices.

“How did the price of a bag of flour double?” Mohammed Usman, a photographer based in Islamabad, Pakistan, told CNBC. How come fuel prices almost doubled in less than a year? Almost every discussion between friends or family these days is about how everything is getting more expensive. Add to this political instability and you find yourself in dire straits,” he said.

The value of the rupee has fallen 16.5 percent since the artificial limit was lifted last week.

After the technical talks finish tomorrow, the policy-level talks will start. The ninth appraisal meeting between the parties is expected to conclude on February 9.

AGREEMENT WITH THE IMF

Pakistan has agreed with the IMF on a $6 billion economic rescue package, which is scheduled to be paid in 39 months in 2019.

In July 2022, it was discussed again and the IMF announced that the total amount of the loan was increased from 6 billion dollars to 7 billion dollars.

Under the deal reached, the IMF stated that it would release a $1.17 billion loan to Pakistan if conditions were met.

Political crises, the depreciation of the rupee against the dollar and rising inflation, as well as the devastating flood, energy shortages and power outages last year added pressure on the country’s economy.

Pakistan’s national debt is around $274 billion, which corresponds to around 80 percent of its gross domestic product (GDP). This makes the country vulnerable to economic shocks.

The Islamabad government has to pay about $30 billion in foreign debt this fiscal year.