March 30, 2023
Economy Pakistan

Pakistan’s Economic Crisis: A Perfect Storm

Pakistan's Forex Crisis and its Impact on India's Security

Pakistan’s economy is in a state of turmoil as its foreign exchange reserves have fallen to a nine-year low of $2.917 billion, according to a report by Pkrevenue. The country is also struggling to secure a bailout package from the International Monetary Fund (IMF) as the virtual talks between the IMF mission and the Pakistan government have yet to yield any results.

IMF Talks: The IMF mission, led by Nathan Porter, began talks with the Pakistan government on January 31 to review the $6.5 billion loan program, but so far, no deal has been announced. The IMF has stated that virtual discussions will continue in the coming days to finalize the implementation details, but the amount on the table is still not enough to replenish Pakistan’s depleted reserves.

Debt Default Concerns: The world’s fifth most populous country is getting closer to a debt default, echoing the tales of Sri Lanka and Venezuela. The Pakistani Rupee has been on a steep decline, falling to ₹271.50 per dollar in the inter-bank market on February 11, as reported by PK Revenue.

Discontinuation of 5,000 Note: The Pakistan Business Council has reportedly suggested discontinuing the 5,000 note, the country’s highest denomination banknote, to stabilize the economy.

Inflation and Essential Commodities: Pakistan’s inflation is at a 48-year high, with foreign currency reserves covering less than a month of imports. The Consumer Price Index increased by 27.6% in January 2023, and the Wholesale Price Index increased to 28.5% in the same period. The rising inflationary pressure has resulted in a 50% increase in the average cost of a 20kg wheat flour bag, which went from PKR 1,164.8 in January 2022 to PKR 1,736.5 in January 2023.

Power Outages and Rising Debt: Most petrol pumps in the Punjab region of Pakistan ran out of petrol last month, and the country suffered nationwide power outages due to the breakdown of the “national grid.” Pakistan’s expenses are rising, and due to high levels of borrowing, the country’s total debt and liabilities reached PKR 59,697.7 billion (89% of the GDP) in FY22

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