Why Pakistan’s Crashing Economy Could Face “Bad Days Ahead”

'Bad days ahead', Pakistan's finance minister warns

Pakistan had hoped for a quick revival of the bailout, but the IMF has not released the tranche.

Karachi:

Pakistan’s Finance Minister Miftah Ismail said on Friday that the government will continue to curb imports for the next three months as he warned of “bad days” ahead for the poor country.

Speaking at a ceremony at the Pakistan stock exchange, the minister said the government led by Prime Minister Shehbaz Sharif was suffering from the economic policies of the former Pakistani Tehreek-e-Insaf regime led by deposed Prime Minister Imran Khan.

“During the previous administration of Pakistan Muslim League-Nawaz (PML-N), the country’s budget deficit was $1,600 billion, and over the past four years under Pakistan’s Tehreek-e-Insaf regime, that figure has risen to $3,500.” said Geo. TV quoted Ismail as saying.

“No country can grow and be stable with this kind of current account deficit,” he claimed.

“If you increase the budget deficit and also increase borrowing by 80 percent, it has a negative effect on the economy,” he explains.

“I will not increase imports for the next three months and in the meantime we will come up with a policy. I understand that growth will slow down for a while, but I have no other choice,” Dawn newspaper quoted the finance minister as saying. as said.

Pakistan’s import bill for the previous fiscal year was $80 billion, while its exports were $31 billion.

He noted that the current government needed to save the country from a possible default and take immediate and short-term measures. “Maybe it was unwise in the long run,” he lamented.

“We are on the right track, but it is clear that we can see bad days. If we have our imports under control for three months, we can boost our exports in several ways,” he claimed.

Speaking of the exchange rate, Ismail noted that dollar outflows outpaced inflows, which is why the rupee had fallen sharply against the dollar in the past month.

The Pakistani rupee rose 2.15 against the US dollar for the sixth straight session during intra-day trading in the interbank market, hitting 224 against the greenback on Friday.

Since Khan’s impeachment in April, Pakistan’s currency has fallen to an all-time low of 240 amid uncertainty over IMF aid.

Last week, New York-based rating agency S&P Global revised Pakistan’s long-term ratings from “stable” to “negative” amid rising inflation and tightening global financial conditions.

Pakistan reached a staff-level deal with the IMF last month, followed by months of highly unpopular tightening by the government, which came to power in April and effectively eliminated fuel and power subsidies and introduced new measures to broaden the tax base.

The new government has cut a raft of subsidies to meet the demands of global financial institutions, but risks the ire of an electorate already struggling under the weight of double-digit inflation.

Pakistan had hoped for a quick rebound in the bailout, but the IMF has so far not released the much-needed tranche.

IMF’s Resident Representative for Pakistan, Esther Perez Ruiz, said earlier this week, following the staff-level agreement, that the country had fulfilled the last condition to increase the petroleum development tax for the combined seventh and eighth revisions.

An original $6 billion bailout package was signed by former Prime Minister Imran Khan in 2019 but repeatedly stalled when his government withdrew from grant agreements and failed to significantly improve tax collection.

Pakistan desperately needs the IMF loan.

In July, the fund said it would increase the value of the bailout from $6 billion to $7 billion if approved by the board, which is usually considered a formality.

Sharif has repeatedly blamed the former prime minister’s government, alleging that Khan – a former cricketer turned Islamist politician – had deliberately violated the IMF’s terms and conditions in order to remain popular among followers at home.

(This story was not edited by NDTV staff and was generated automatically from a syndicated feed.)

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