Eleventh-hour negotiations between Pakistan and the International Monetary Fund (IMF) have failed to unlock $1.1bn in crucial funds aimed at preventing the country from going bankrupt.
A deepening economic crisis has all but emptied Pakistan’s foreign exchange reserves, leaving it barely enough dollars to cover a month of imports and it is struggling to service sky-high levels of foreign debt.
The IMF team, which leaves Islamabad on Friday, said “considerable progress” had been made after 10 days of talks.
“Virtual discussions will continue in the coming days,” the head of the IMF mission Nathan Porter said in a statement.
In January annual inflation soared to over 27%, the highest it’s been in Pakistan since 1975, and there are mounting fears for the economy in a pivotal election year.
This week the rupee sank to a historic low of 275 to the dollar, down from 175 a year ago, making it more expensive for Pakistan to buy and pay for things.
The lack of foreign currency is one of the most pressing of Pakistan’s problems.
Factories like Jubilee Textiles in Faisalabad, the industrial heartland of Pakistan, were shut recently – not by the frequent power cuts that have dogged Pakistan for years, but because they couldn’t get hold of dollars to pay for the goods they need.
Businesses and industries across Pakistan said they have had to slow or stop work while they also wait for goods they have imported that are currently stacking up in ports.
In late January, a government minister told the BBC that there were more than 8,000 containers piled up in Karachi’s two ports, containing goods from medicine to food. Some of that has started to clear, according to local media reports, but much is still stuck.
Pakistan, like many countries, is suffering as a result of the coronavirus pandemic and Russia’s invasion of Ukraine, following which global fuel prices have soared. Pakistan relies heavily on imported fossil fuels and importing food has also become more expensive.
If the rupee depreciates, fuel costs more, with knock-on effects for goods that are transported or manufactured. The government recently increased fuel prices by over 13% but says it’s not planning anymore.
Add to this the cost of last year’s floods, which the UN says caused damage of more than $16bn. Huge areas of Pakistan were submerged, destroying farmland and disrupting its ability to produce food. Basics like wheat and onions have skyrocketed in price.
All this comes in an uncertain and febrile political climate – an election is due by the end of the year.
As for bailouts, Pakistan is no stranger to them. The country – which has a massive military budget and years of debt-driven infrastructure spending – has long failed to wean itself off populist subsidies and stabilize its economy.
“If you see the history of Pakistan, we have a cycle of the balance of payments problems,” says Dr. Sajid Amin Javed, deputy executive director at the Sustainable Development Policy Institute in Islamabad.
“We go to the IMF. We implement very strict reforms, for two or three years, then it’s an election year and unfortunately, we reverse them all.”
Subsidies have long been used to woo voters in Pakistan, he says.
Source-BBC
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