Forced by poor economic management, will Pakistan be the next country to go Sri Lanka’s way ? Pakistan heading economic Crisis?
Image source- wionnews.com
News like Pakistan selling donkeys to China and the government asking people to drink less tea, have been surfacing on social media for a long time. The current situation of the country is due to a large number of defective economic policies and unstable political conditions. Even Pakistan is not able to secure the bail out package from the International Monetary Fund(IMF) which has forced Lahore to look for other ways to bring in the money.
Bad decision made by Pakistan
Pakistan’s short-sighted policy decision, which has resulted in significant spending on non-developmental and financially unviable projects, is mostly to blame for the current economic crisis. The problems are exacerbated by economic mismanagement, the funding of pointless infrastructure projects like the Gwadar-Kashgar Railway line project through long-term loan instruments, and a heavy reliance on foreign borrowing rather than native institutions. The CPEC’s (China-Pakistan Economic Corridor) rollout increased debt levels and made it easier to obtain even-larger loans from abroad. Notably, the CPEC increased China’s debt to Pakistan from US$47 billion in 2014 to US$64 billion today.
Pakistan had no choice but to turn to Saudi Arabia for rescue after its attempt to negotiate with the IMF ended in failure in October 2021. Interestingly, compared to the IMF, the terms of its loans from Saudi Arabia are more generous. However, Saudi Arabia’s interest rate is much higher than the IMF’s loan rate. Mainly owing to their similar religious beliefs, Pakistan and Saudi Arabia have always shared a very strong connection. Huge amounts of aid sent from Saudi Arabia to Pakistan have always been used to fund humanitarian needs and promote religious activities. Both countries are members of the Organization of Islamic Cooperation (OIC).
How much is the debt of Pakistan?
The gross public debt stood at Rs44. 4 trillion by the end of March 2022, according to the State Bank of Pakistan (SBP) data. The Pakistani rupee fell 34% against the US dollar since last year and saw 21.3% inflation in June. Sadly Pakistan has forex reserve only enough for probably 6 more weeks.
Russia-Ukraine war factor
Russian fuel shortage from the global market took fuel prices sky-high. Both Russia and Ukraine are exporters of wheat, hence affecting the price of the same globally. Unfortunately for Pakistan, it is an importer of both food and fuel, and due to the fall in the value of the Pakistani currency, imports are even costlier.
Pakistan is facing blackouts in several parts of the country due to fuel shortage, food has become more expensive, there is political instability in the country. Pakistan shows all the markers of going the Sri Lankan way.   Â
Pakistan heading economic Crisis?
