Pakistan Is Facing Major Economic Crisis

Pakistan Economic Crisis

Pakistan is facing a major economic crisis. News agency AFP headlined one of it reports as “Pakistan’s economy in ‘collapse’ as IMF visits”

A report — Pakistan facing worst economic crisis; Pakistani rupee at Rs 250 against dollar: Report —  said:

Pakistan is facing the worst economic crisis since the nation formed with its currency falling to Rs 250 against the dollar. According to Asia Lite, the administration has changed in Pakistan but the economic blunders continue.

A report — Why IMF loan can’t save Pakistan in the long run (January 31, 2023) — by The Week  said:

As it teeters on the edge of economic collapse and loan default, Pakistan is desperately at the mercy of the International Monetary Fund (IMF). Just days after Islamabad succumbed to IMF demands, which will, in all probability, backfire on the Shahbaz Sharif-led government politically, talks resumed between Pakistan and IMF officials on Tuesday.

The aim is to complete the ninth review under the $7 billion Extended Fund Facility. But, the Pakistan delegation led by Finance Minister Ishaq Dar does realize this isn’t a cakewalk as he has, for long, sought some leniency from the IMF on tax rises and subsidy slashing, which the agency mandates for the revival of the loan facility.

All attempts to coax the IMF, including requesting the US to use its diplomatic influence to convince the IMF, have ended in vain. No friendly country has offered less painful bailouts too. This left Islamabad with no option but to heed its demand.

The AFP report said:

Pakistan is gripped by a major economic crisis, with the rupee plummeting, inflation soaring and energy in short supply as International Monetary Fund officials visit to discuss a vital cash injection.

Pakistan’s Prime Minister Shehbaz Sharif for months held out against the tax rises and subsidy slashing demanded by the IMF, fearful of backlash ahead of elections due in October.

Prospect Of National Bankruptcy

The report said:

But in recent days, with the prospect of national bankruptcy looming and no friendly countries willing to offer less painful bailouts, Islamabad has started to bow to pressure.

The government loosened controls on the rupee to rein in a rampant black market in US dollars, a step that caused the currency to plunge to a record low. Artificially cheap petrol prices have also been hiked.

“We are at the end of the road. The government has to make the political case to the public for meeting these (IMF) demands,” former World Bank economist Abid Hasan told AFP.

Time is of the essence, with Nasir Iqbal from the Pakistan Institute of Development Economics warning the economy had already “virtually collapsed” due to mismanagement and political turmoil.

The report said:

The IMF delegation arrived on Tuesday to a nation in panic.

The world’s fifth-biggest population has less than $3.7 billion in the state bank — enough to cover just three weeks of imports.

It is no longer issuing letters of credit, except for essential food and medicines, causing a backlog of thousands of shipping containers at Karachi port stuffed with stock the country can no longer afford.

Industry has been hammered by the imports block and massive rupee devaluation. Public construction projects have halted, textiles factories have partially shut down and domestic investment has slowed.

In downtown Karachi, dozens of day laborers including carpenters and painters wait with their tools on display for work that never comes.

Beggars Increased

The report added:

“The number of beggars has increased and the number of laborers has decreased,” said 55-year-old mason Zafar Iqbal, who was eating biryani from a plastic bag donated by a passerby.

“Inflation is so high that one cannot earn enough.”

At the petrol pump, a widow with her son said every few hundred rupees (75 cents) of fuel for their motorcycle was precious, with the pair only eating two meals a day.

“The cost is so high that we eat our breakfast late and the second meal at around seven, with nothing in between,” said Ulfat, who declined to give her second name.

Pakistan is struggling on many fronts, with the country reeling from unprecedented floods that submerged a third of its territory last summer and a deteriorating security situation near the Afghanistan border.

The report said:

Pakistan is locked in an endless cycle of servicing external debt.

State Bank governor Jamil Ahmed last month said the country owed $33 billion in loans and other foreign payments before the end of the fiscal year in June.

A diplomatic offensive has seen $4 billion rolled over by lending nations, with $8.3 billion still on the negotiating table.

Meanwhile, Pakistan is battling severe energy shortages — with capacity drained by poor infrastructure and mismanagement — compounding the misery of businesses and citizens.

Last week the whole country was plunged into a day-long blackout because of a fault in the national grid that followed a cost-cutting measure.

State petroleum minister Musadik Malik told reporters in Islamabad that imports of Russian oil would start in April, paid for in currencies of “friendly countries” in a mutually beneficial deal.

The tumbling economy mirrors the country’s political chaos, with former prime minister Imran Khan heaping pressure on the ruling coalition in his bid for early elections while his popularity remains high.

Khan, who was ousted last year in a no-confidence motion, negotiated a multi-billion-dollar loan package from the IMF in 2019.

But he reneged on promises to cut subsidies and market interventions that had cushioned the cost-of-living crisis, causing the program to stall.

It is a common pattern in Pakistan, where most people live in rural poverty, with more than two dozen IMF deals brokered and then broken over the decades.

“Even if Pakistan avoids default, the underlying structural factors that triggered the current crisis — one exacerbated by poor leadership and external global shocks — will still be in place,” tweeted political analyst Michael Kugelman, the director of the South Asia Institute at the Wilson Center in Washington.

“Barring difficult, large-scale reforms, the next crisis could be just around the corner.”

A report — Bottom of Form

Pakistan braces for fuel shortages amid liquidity crisis — by Reuters, (January 31, 2023) said:

Pakistan could face a crunch in fuel supplies in February as banks have stopped financing and facilitating payments for imports due to depleting foreign exchange reserves, traders and industry sources said.

The country is facing a balance of payments crisis and the plummeting value of the rupee is pushing up the price of imported goods. Energy comprises a large chunk of the import bill.

Pakistan typically meets more than a third of its annual power demand using imported natural gas, prices for which shot up following Russia’s invasion of Ukraine.

“There is no shortage this fortnight. If we don’t have LCs (letters of credit) open right now, we might see shortages in the next fortnight,” a senior official at one of the oil companies told Reuters.

A letter of credit issued by the importer’s banks is a standard form of payment guarantee in the oil trade to the exporter.

Oil traders, however, are shunning countries such as Pakistan and Sri Lanka due to an acute shortfall of foreign exchange. Pakistan on Sunday raised petrol and diesel prices by 16 per cent to Rs249.80 a liter and is in talks with the International Monetary Fund to unlock a suspended bailout package.

State-owned refiner Pakistan State Oil (PSO) and Pakistan LNG Ltd have left a flurry of fuel tenders unawarded in the last couple of months.

At an industry meeting on financial challenges faced by fuel importers, State Bank of Pakistan officials cited “severe liquidity issues” faced by the country for delays in the opening of LCs, according to a Jan 19 letter from Imran Ahmed, director general of oil, reviewed by Reuters.

At the same meeting, the managing director of PSO said a gasoline cargo due for loading on Jan 13 has already been cancelled due to the non-opening of LCs. “He added that the country is having limited stocks and such a situation can lead to dry out,” according to the letter.

Previously, the Oil Companies Advisory Council (OCAC), representing refining, pipeline, and marketing companies, also flagged that delays in the opening of LCs could “lead to a fuel shortage in the country”.

In a Jan 13 letter to the Ministry of Finance, OCAC said Pakistan needs to import around 430,000 tonnes of gasoline, 200,000 tonnes of diesel, and 650,000 tonnes of crude oil every month, costing $1.3 billion to meet local demand.

“If LCs are not established on a timely basis, critical imports of petroleum products would be impacted which may lead to a fuel shortage in the country,” the OCAC said.

Pakistan bought only 223,000 tonnes of gasoline in December versus 608,000 tonnes in the same period a year earlier, data from Kpler showed. In January this year, the country was projected to import 270,000 tonnes of the fuel, compared with 393,000 tonnes in the same month in 2022, the data showed.

Some banks have denied delays in issues of LCs, while SBP did not respond to a Reuters email seeking comment.

“If there are no issues with LCs in Pakistan then why have the SBP and sector been holding meetings all of last week?” a senior official from one of the oil companies said.

PSO said last week it was ensuring a seamless supply of gasoline and oil across the country and had ample stocks.

It also said its import cargoes were arriving smoothly as planned.

Suicide Attack Toll Rises To 100

The death toll from the suicide attack on a mosque in Peshawar’s Police Lines area rose to 100 on Tuesday after more bodies were recovered from the attack site.

A hospital spokesperson said that 100 dead bodies had been brought to the medical facility. In a statement, he said 53 injured citizens were currently being treated.

Debate In Parliament

National Assembly rues plan to resettle militants (February 1, 2023) – by The Dawn said:

A day after 100 people perished in Peshawar, lawmakers at the federal legislature regretted the decision to enter into dialogue with militants and resettle them in the country during the previous PTI regime, calling it a “faulty” move which was “never endorsed” by parliament.

In their policy statements, Defence Minister Khawaja Asif and Interior Minister Rana Sanaullah referred to in-camera briefings given to parliamentarians by the military leadership during the tenure of the PTI government, following the fall of Kabul.

The defence minister said: “A message was given that talks could be held with them [the militants].” He clai­med that the briefings had remained “inconclusive” and they were only informed about the decisions that were already taken and parliament never endorsed them.

“How could one expect that those who had never seen peace in their life would live peacefully,” said Mr Asif as the house formally began a debate on the suicide attack.

“Decisions made some two years ago had not been endorsed by this house. We were only told in the briefings that this decision had [already] been made. Now, who will be held accountable for the bloodshed?” he asked.

“We are all members of parliament. Are we sovereign? We are a mortgaged nation. The decisions are not in the hands of the nation,” he said, stressing: “We must put our house in order. There is a need for introspection. Why these people were brought here [to Pakistan]?” he asked.

The minister also criticized the decision to become part of the Afghan Jihad in the 1980s, and later, the US-led ‘War on Terror’ post 9/11.

He said: “We ourselves sowed the seeds of terrorism when the Russian troops entered Afghanistan and we provided our services to the U.S. on rent.”

“We were very fond of launching a jihad,” quipped Mr Asif.

He regretted that Pakistan had always acted as a “stooge” for the world powers, but today the country was standing alone in the fight against terrorism.

‘8,000 militants’

The report said:

Mr Sanaullah said the previous regime told them that there were some 8,000 militants and that they should be given an opportunity to surrender before the law as some 25,000 family members, including the children, were also associated with them.

The decision might have been made in good faith but this policy proved wrong, he said while referring to the recent surge in terror attacks. The minister claimed the PTI government released thousands of the militants from jails, including those who had been sentenced to death.

“There is a need that for the prime minister and the military leadership should take this house into confidence. There should be a debate in parliament,” he said, while asking the lawmakers to suggest a way forward.

He said the military leadership should place facts and figures before the house and added that the prime minister and the army chief would “certainly” come to the house and brief this house which would provide them a “way forward”.

The National Assembly, which met after a two-week recess, also witnessed an emotional speech by MNA from Peshawar, Noor Alam Khan, who protested the absence of the premier and the non-serious attitude of some of Punjab’s MNAs.

“Unless there is bloodshed in Lahore or Punjab, these people will not get serious,” said Mr Khan, pointing towards some backbenchers who were busy chit-chatting.

“I feel that I am a second-rate citizen of Pakistan,” said Mr Khan while referring to an incident where the security personnel did not allow him to enter the Red Zone area in Peshawar without proving his identity.

“Afghans are roaming everywhere and Pakistanis are facing difficulties and are asked to show their identity cards,” he claimed.

The interior minister, however, responded to Mr Khan’s speech and said terrorism was a collective issue, which could be rooted out through forging unity and joint efforts. He claimed that in 99 per cent of incidents, the terrorists didn’t belong to Punjab.

‘Revisit counter-terrorism policy’

The report added:

Meanwhile, the bombing resonated in Senate as well where lawmakers urged the need to revisit the counter-terrorism and Afghan policies. PPP leader Raza Rabbani demanded a new consensus as he called out the former government for its plan to rehabilitate the banned TTP.

The senator regretted that “good Taliban” had been allowed to cross into Pakistan along with arms.

He said parliament and the nation were not taken into confidence over dialogue with the Tehreek-i-Taliban and the subsequent ceasefire. He agreed with his colleagues in NA that parliament had never endorsed talks with the TTP and also raised questions over “outsourcing” the dialogue to a jirga.

About the reports of a joint session of parliament on Feb 8, he demanded that the session be devoted to the counterterrorism policy and added a meeting of the Senate’s Committee of the Whole should be held for threadbare discussion on the security situation.

Senator Mushahid Hussain Syed and Senator Tahir Bizenjo also sought revision of policies pertaining to terrorism and Afghanistan.

PTI Senator Saifullah Abro chided the ruling coalition for accusing former premier Imran Khan of re-launching TTP and said there should be no point-scoring on the issue of terrorism. In the same breath, however, he sought an inquiry into the prior knowledge of the KP governor about the law and order situation in the province.

In response to Mr Abro, PML-N’s Irfan Siddiqui recalled that the TTP had named PTI chief Imran Khan as a member of its negotiating team when a decision to pursue peace talks with the militant group had been taken in February 2014. Senator Rana Maqbool called for a diplomatic offensive with reference to Afghanistan.

In a tweet, PM Shehbaz Sharif said that the militants wanted to “reverse” gains against terrorism. He urged political unity amid the terror wave.

A source in the Prime Minister’s Office (PMO) said the federal cabinet was meeting today (Wednesday) in which the issue of rising militancy will be discussed in detail.

Separately, US National Security Council Spokesperson Adrienne Watson termed the increase in Peshawar deaths “tragic and heartbreaking”. The US official reminded all that “terrorism is indefensible, and to target worshippers is unconscionable.”

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