Aamina Ikram is currently pursuing her degree in international relations from International Islamic University. Her areas of interest lie include Middle Eastern politics and espionage operations.
Pakistan’s economic situation was already jeopardized due to hyperinflation, harsh monetary policies of the IMF, and devalued currency, when the catastrophic floods of 2022 drowned one-third of its area. Little was the state ready to deal with this calamity, which affected 33 million Pakistanis and destroyed agriculture, livestock, and infrastructure, costing a $30bn loss to the economy. The floods have affected Sindh and Balochistan the most, where a large populace is still waiting desperately to be rescued and rehabilitated.
In his opening address to the 77th session of the UN General Assembly, Secretary-General Antonio Guterres appealed to world leaders to help nations that are going towards economic collapse. He also highlighted the flood crisis in Pakistan, pointing out that Pakistan is drowning, not only in floodwater, but in debt too.
The latest report published by the Asian Development Bank has forecast a 3.5% derail in Pakistan’s economy in the fiscal year 2023 even when the growth is expected to reach 6.0% in FY2022. The main factors behind this dwindling economy are devastating floods, tight policies, political instability, and external imbalances.
Pakistan’s Current Economic Situation
Pakistan’s economy stands in a tailspin amid the volatile political situation and the current flood crises. In a country where 24.3% of the total population (55 million people) lives below the poverty line, prevailing scenarios can lead to a default. Despite that the value of the Pakistani rupee has been restored to Rs. 218 against the dollar in the inter-bank market, the country still stands in a quagmire given the catastrophic floods, political turmoil, and tight policies.
Inflation in the country increased to 21.3% in June, increasing the average headline inflation to 12.2% in FY2022. The ADB report presents a grim picture of the future of the country in FY2023, predicting a rise in inflation to 18% amid tightening monetary policies.
Blockage of international supply chains and geopolitical tensions slowed down the economic growth of Pakistan, but it showed an overall positive trend due to continuing high growth path of potential output. In FY2022, IMF’s revived policy also helped to increase private consumption by 10%. Meanwhile, the crops and livestock sector has also performed well to increase the agricultural output by 4.4%.
The most overwhelming thing for the economy is the shrinkage of the current account deficit from $2.2 billion in June 2022 to $ 1.2 billion in July but the fluctuations in the value of currency make it ambiguous to predict what will happen next. However, it is expected to reach equilibrium in the coming months considering the expected trajectory of balance on goods and services.
The exports have increased to 40.53% in FY2023, as per the Pakistan Bureau of Statistics report. This increase in exports is crucial for alleviating the constrained balance of payments, which is one of the most significant factors responsible for jeopardizing Pakistan’s economic situation.
The return of Ishaq Dar and stability to the Pakistani rupee is being called out by economic experts. Many are calling this stability an illusion, created by the PMLN government to win the next general elections. However, Mr. Dar is going to attend the annual meeting of the IMF to secure significant concessions and procure multilateral dollars.
Balance of Payments Game at Peril
Pakistan’s economic situation worsened due to a vicious cycle of debt that was formed when the state took loans from neighboring countries i.e., UAE, Qatar, and China in 2019. To balance payments, Pakistan headed to the IMF for a loan. This cyclic journey of debt has done more harm than it was imagined. Moreover, the calamity of floods hit the country at a time when its economy was not performing well, thus making the conditions more critical.
It became a Hobson’s choice for the government of Pakistan to strike a loan deal with the IMF, given the debt-laden economy. IMF imposed barbaric preconditions on the government asking it to levy more taxes, remove subsidies on all items and increase electricity tariffs to overcome the current account deficit and receive the next tranche of its loan.
IMF Relief and the Climate Crisis
PM Shehbaz Sharif urged in the 2022 SCO summit about the urgency of “building a wall” against climate change. The floods in Pakistan are a result of unprecedented heavy monsoon rains. According to reports, Pakistan received 190% more rain this year, compared to the average rainfall received in the last 30 years. It is an alarming condition for Pakistan when the country is badly battered by global inflation and political chaos.
Floods have destroyed nearly 2,000 health facilities, as per WHO officials. People in the affected areas are left with no option but to drink unsafe dirty water, which is posing a risk to their lives. IMF’s resident representative to Pakistan has assured that the organization will work with Pakistan in the current program, to relieve and reconstruct the flood-affected areas, while ensuring macroeconomic stability and sustainable policies. Pakistan’s government expects to receive substantial aid in the next tranche, coming from the IMF.
If it wasn’t for the relief given by IMF during the post-flood economic collapse, it would have been very difficult for Pakistan to manage this crisis. The government of Pakistan cut down the price by Rs.12.63 per lit (after receiving the nod from IMF) but the cash-starved government also has other means to collect taxes from the populace.
The Germanwatch Global Climate Index ranked Pakistan at the position of 12th most vulnerable state to climate disasters. Moreover, the United Nations Economic and Social Commission for Asia and the Pacific has predicted a 9% decline in the GDP of Pakistan due to climate change which will lead to a food crisis if not managed in time.
If the higher authorities don’t work to counter climate change, which is hovering over the country as a black cloud, the country will collapse. Pakistan has been witnessing political and economic instability since its formation in 1947. The petty power politics at home needs to end for the sake of the country. A guided policy to tackle climate change has become the need of the hour.
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