Pakistan in severe financial crisis

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Pakistan Government will certainly seek foreign aid and loans to stabilize its rapidly dwindling foreign currency reserves and the balance of payments crisis, financial experts, which have termed the current situation a ‘financial crisis’, have predicted.

According to ANI citing informed sources in Islamabad, the government wants to acquire financial strength before the July 25 general elections.

Sources quoted economic pundits in the government as suggesting that the current account deficit can be stabilised by using rapidly dwindling foreign currency reserves.

There is growing speculation that the government will have to seek a loan package from the International Monetary Fund (IMF) following the elections, for the second time since 2013, amid fears of being faced with a balance of payments crisis.

Caretaker Finance Minister Shamshad Akhtar told a press conference in Islamabad on Tuesday that the government has to finance this trade deficit gap of USD 25 billion.

The announcement came hours after the State Bank of Pakistan devalued the rupee by 3.7 per cent, the third devaluation since December. It is also saddled with a heavy public debt – 70 per cent of GDP, according to Akhtar – along with a yawning fiscal deficit.

The economy grew by 5.8 per cent during 2017-18, missing a government target by two per cent, according to documents from the finance ministry. Plagued for years by a Taliban insurgency, it has been battling to get its shaky economy back on track and end the energy crisis crippling industry.

Fears also remain if Pakistan will be able to repay the CHinese loans, which it has been in lieu of China’s ambitious multi-billion dollar infrastructure project – the China-Pakistan Economic Corridor – linking its western province of Xinjiang to the Arabian Sea via Pakistan. Much of CPEC’s financial terms are shrouded in secrecy.

The Pakistani rupee slumped 3.8 per cent against the dollar on Monday before slightly recovering in what appeared to be the third currency devaluation in seven months by the central bank amid a balance of payments crisis.

The rupee drop threatens to squeeze consumers, coming just days before Eid-ul-Fitr and ahead of the July 25 general election.

The apparent devaluation shows signs of vulnerability in the country’s nearly USD 300 billion economy, as dwindling foreign reserves and a widening current account deficit trigger speculation about going back to the International Monetary Fund for loans for the second time since 2013.

The current account deficit now stands at USD 14 billion, around 5.3 percent of gross domestic product, an SBP official said.

The economic outlook has been hurt by the fast depletion of foreign currency reserves, which now stand at just over USD 10 billion.

Pakistan is currently in discussions with China for loans to ease pressure on its foreign currency reserves. Over the weekend, the shortage of foreign currency widened the spread at which the rupee is traded in the open market and the interbank market to four rupees.

 

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