September 5, 2023
Economy Pakistan

Pakistan’s economic crisis: China and Iran step in as IMF delays loan, but at what cost?

The economic crisis in Pakistan has prompted the country to seek help from China and Iran to address the challenges. The country’s foreign exchange reserves have hit a decade low, and the International Monetary Fund (IMF) has delayed unlocking the next tranche of a $6.5 billion loan, making it necessary to look for alternative sources of aid.

China has extended a $700 million loan through the China Development Bank to increase Pakistan’s foreign exchange reserves by 20 percent. While the country is negotiating with the IMF to unlock funds from a previously agreed bailout package, China has emerged as Pakistan’s largest creditor, with its commercial banks holding approximately 30 percent of the country’s external debt.

In another development, Iran has established six border markets to boost trade with Pakistan, with bilateral trade volume reaching $2 billion in the last 10 months. To facilitate trade between the two countries, Iran has relaxed visa policies, but the absence of a banking channel has led to some trading difficulties.

Pakistan is also making efforts to secure funding from the IMF by implementing policy changes, including measures to boost tax revenues and improve resource allocation. The IMF has suggested reducing subsidies for those who do not require them.

The national assembly of Pakistan has approved the government’s Finance (Supplementary) Bill 2023 or ‘mini-budget’, which increases taxes on luxury goods and services. However, the government has also raised prices on fuel and essential commodities, which has made it challenging for the public to fulfill their basic needs.

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