Islamabad/London
CNN
–
Muhammad Radakat, a 27-year-old greengrocer, is worried He doesn’t know how much an onion will cost next week, how he will be able to afford the fuel he needs to heat his house and keep his family warm.
“We are being told by the government that things are going to get worse,” Radakat told CNN.
His concern reflects a nation’s mood to run to avoid an economic downturn. The US is facing shortages Dollars, Pakistan has enough foreign exchange reserves for three weeks of imports.
Thousands of shipping containers are piling up at ports and prices of essentials like food and energy are skyrocketing. Long lines are forming at gas stations as prices skyrocket in the country of 220 million.
Nationwide power outages last month made people even more alarmed. It brought Pakistan to a standstill, plunging residents into darkness, shutting down transit networks and forcing hospitals to rely on backup generators. Officials could not determine the cause of the blackout.
Pressure is mounting on Prime Minister Shehbaz Sharif’s government to unlock billions of dollars in emergency financing from the International Monetary Fund, which this week sent a delegation for talks.
Pakistan’s currency rupee has recently depreciated The US dollar hit fresh lows after authorities eased currency controls to meet one of the IMF’s lending conditions. The government is resisting IMF-requested changes, such as easing energy subsidies, because they would cause new price increases in the short term.
“We have to go through the IMF deal as soon as possible to save the ship,” said Maha Rehman, an economist and head of analysis at Pakistan’s Center for Economic Research.
Pakistan is facing what economists call a balance of payments crisis. The country is spending more than it brings in on trade, depleting its foreign exchange reserves and weighing on the rupee’s value. This dynamic pays interest on loans from foreign lenders By making imports even more expensive and pushing the cost of goods higher, a larger drawdown in stocks is required, further exacerbating the misery.
The country is also grappling with rising inflation. The country’s central bank raised its key interest rate by 17% to curb annual consumer price inflation of around 28%.
something The problems the country is facing are specific to Pakistan. According to Tahir Abbas, head of investment research at Arif Habib, the country’s largest securities brokerage, political instability and efforts to support its currency, for example, have affected investments and exports.
Historic floods last summer also brought huge bills for reconstruction and aid, putting pressure on government budgets. The World Bank has estimated that at least $16 billion is needed to address damage and loss.
Yet global factors are making the situation worse. The economic slowdown has weighed on Pakistan’s export demand, while a sharp rally in the value of the US dollar last year has put pressure on countries that import significant amounts of food and fuel. The price of these products has already risen due to the pandemic and Russia’s war in Ukraine, which requires even greater spending.
The IMF has repeatedly warned that this could strain the weak economy. Although it predicts that emerging markets and developing economies will see a modest increase in growth this year as the dollar takes off With its high, declining global inflation and demand for China’s reopening, its ability to manage the debt burden is a concern.
It estimated this week that 15% of low-income countries are already in debt crisis, while another 45% are at high risk of struggling to meet their obligations. An additional 25% of emerging market economies are at high risk. Tunisia, Egypt and Ghana have all asked the IMF for billions of dollars in bailouts in recent months.
“The combination of higher debt levels from the pandemic, lower growth and higher borrowing costs exacerbates the vulnerability of these economies, particularly those with near-term dollar financing needs,” the IMF wrote in its World Economic Outlook this week.
According to investors and economists, talks with the IMF to restart its stalled aid program must be successful in order to avoid Pakistan’s default. The IMF delegation arrived on Tuesday and will remain until February 9.
“The availability of IMF loans is critical,” said Ammar Habib Khan, senior non-resident fellow at the Atlantic Council.
But Farooq Tirmizi, CEO of Elphinstone, a startup geared towards Pakistani investors, said that even if the IMF program were to resume, it would not solve all the problems, as the main problems plaguing Pakistan “are not economic, but political, that the government is not willing to make structural changes.
Pakistan’s economic crisis was at the center of a political showdown between Sharif and his predecessor Imran Khan last year. Khan was ousted in a no-confidence vote in April after accusing Sharif of economic mismanagement.
Since then the situation has been turbulent. Pakistan has gone through three finance ministers in less than a year. The last two were part of the current government, raising questions about whether Sharif could hold on to power. The country is due to hold general elections this summer.
The turmoil comes as Pakistan faces a new wave of attacks by militants Earlier this week, at least 100 people were killed in a suicide bombing at a mosque in the city of Peshawar. It was one of the country’s deadliest attacks in years.
People are already suffering. Farmers who have lost crops of cotton, dates, sugar and rice in the floods still need help. The World Bank predicted in October that about nine million Without “decisive relief and recovery efforts to help the poor,” Pakistanis could be pushed into poverty.
High inflation is only adding to the pain for families struggling to make ends meet. Food prices rose 43% year-on-year in January, according to data released this week.
Recently the focus has been on a man in southern Sindh province who lost his life fighting for a bag of subsidized flour provided by the local authorities. The crowd beside him crushed him to death.
