Austerity drive, IMF deadlock: How Pakistan’s economic crisis is getting worse


NEW DELHI: Cash-strapped Pakistan is desperately seeking help.
Prime Minister Shehbaz Sharif has made calls to the Chinese premier Li Keqiang, seeking Beijing’s help to avert a looming default while army chief General Asim Munir met the Saudi defence minister in Riyadh.
But its record of fiscal indiscipline and the current political volatility at home have hardly been reassuring for lenders.
Successive governments have failed to shore up multilateral or bilateral aid to meet foreign payments.
Islamabad has so far only received half the funds from IMF agreed after a hard-won deal, with a further review of the package ongoing.
Pakistan to press IMF for release of bailout funds
An IMF delegation will meet Pakistan’s finance minister on the sidelines of a conference in Geneva beginning on Jan 9, a spokesperson of the lender said on Sunday, as Pakistan struggles to restart its bailout programme.
IMF is yet to approve the release of $1.1 billion originally due to be disbursed in November last year as part of a Total $6 billion plan.
Prime Minister Shehbaz Sharif on Friday held talks with the IMF chief Kristalina Georgieva to break the deadlock over the release of the next tranche of assistance.
The International Conference on Climate Resilient Pakistan in Geneva, to be co-hosted by PM Sharif and UN Secretary General Antonio Guterres, will look to gather international support for the country in the aftermath of devastating floods last year.
“The IMF delegation is expected to meet with finance minister (Ishaq) Dar on the sidelines of the Geneva conference to discuss outstanding issues and the path forward,” a spokesperson of the IMF told a news agency.
A plan laying out a timeline and the financing of the rebuilding effort has been a sticking point in talks to clear the ninth review that will release $1.1 billion in IMF funds and unlock other international funding too.
IMF unimpressed by Pakistan’s track record
IMF has refused to issue the new instalment of the already agreed loan since Pakistan was not living up to the promises it made when the stalled loan of $6 billion was restored last year.
It had sought assurances from Pakistan on increasing energy prices, imposing more taxes and ending artificial control over the exchange rate for further disbursal.
Prime Minister Sharif during the meeting with the IMF chief sought relaxation in the demand to increase electricity prices to compensate for the deviation of around Rs 500 billion from the annual circular debt management plan.
These remain the major stumbling blocks in reaching an initial understanding of a staff-level visit by the IMF to Pakistan.
Dec inflation at 24.5%, food burning hole in pockets
Pakistan’s inflation rate reached 24.5% in December due to a massive spike in prices of food products.
The higher inflation rate was recorded in rural areas where it spiralled to 28.8% while it remained unchanged at 21.6% in the urban areas, according to the Pakistan Bureau of Statistics.
Prices of perishable food items soared by 56%, which still showed a significant demand and supply gap.
The prices of onions increased by 415% in cities and 464% in villages compared to a year ago followed by a 64% increase in rates of tea.
Wheat – an essential staple food of an overwhelming majority of Pakistanis – is now getting out of reach for many Pakistanis. Its prices increased over 57% while the wheat flour prices also increased by 41%, according to the PBS.
The inflation rate bounced back at a time when the government was now coming under increased pressure to end its indecisiveness and move swiftly to revive the IMF programme aimed at avoiding the sovereign default.
Forex reserves at eight-year low, imports threatened
Pakistan’s central bank forex reserves have plunged to an eight-year low of $5.6 billion, posing a serious challenge for the country in financing imports.
Coupled with another $5.8 billion held by commercial banks, the nation has $11.4 billion in reserves — enough to pay for just three weeks of imports, traders and economists say.
The latest data from the central bank released overnight — for the week ending December 30 — show the country has half the foreign exchange reserves it held a year ago, and the lowest since April 2014.
Servicing foreign debt and paying for crucial commodities such as medicine, food and energy are among the chief concerns.
Amid a crisis-like situation, Pakistan will have to repay approximately $8.3 billion in the shape of external debt servicing over the next three months (Jan-March) of the current fiscal year.
Pakistan banks on Saudi Arabia to avoid default
Finance minister Ishaq Dar expressed hope for a $3 billion second bailout from Saudi Arabia within days, vowing to raise money through sale of assets to beef up the critically-low foreign exchange reserves.
Twice in the past three months, Dar had said that Saudi Arabia would give $3 billion cash- the second bailout in the past one year. It is stated that the matter is now pending before the Saudi King for his final consent.
Dar said that the rollovers of the loans “is not an unusual thing”, as all the nations opt for borrowing new money to pay old liabilities or they opt for rollover.
“We are opting for rolling over deposits,” he said, adding that China would reimburse $1.2 billion shortly but did not say whether Beijing would also give fresh loans, Pakistan media reported.
Markets to close early to save power
Pakistan’s government has ordered all malls and markets to close by 8:30p.m. among other measures in a new energy conservation plan, the country’s the defence minister said.
Wedding halls too have been ordered to close by 10pm. Prime Minister Shehbaz Sharif has ordered all government departments to reduce electricity consumption by 30%.
Measures approved by the cabinet aims to save the cash-strapped country about 62 billion Pakistani rupees ($273.4 million), the minister added.





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