Pakistan has been walking a tight rope in terms of finances for quite some time. The country is being pushed towards bankruptcy with faulty policies and bad governance. According to a media source, Pakistan’s trade deficit increased significantly to an all-time high of $48.66 billion in the current fiscal year, up from $30.96 billion the previous year. This substantial increase of 57 per cent was due to higher-than-expected imports.
The Shehbaz Sharif administration banned more than 800 non-essential luxury commodities in May, yet the trade deficit still rose to dangerous levels, according to a report in the Dawn daily that used provisional official statistics. Pakistan’s trade deficit increased by more than 32% to $4.84 billion in June from $3.66 billion a year earlier as imports grew almost twice as much as exports, according to the report. The trade deficit for the previous fiscal year exceeded the $37 billion mark of 2017–18, with imports from the China–Pakistan Economic Corridor being the major contributor.
Massive trade deficit – A big reason to worry
The highest-ever rise in oil and commodity prices on the global market is a result of supply chain disruptions. The war in Ukraine has caused this disruption. This is one of the key reasons behind the increasing trade deficit in Pakistan. The rise in global commodity prices has caused an unprecedented increase in imports while exports, which primarily consist of semi-finished goods and raw materials, have stuck at $2.5 billion to $2.8 billion per month, according to the report. Pakistan’s import expenditure jumped by 43.45% to $80.51 billion in 2021–2022 from $56.12 billion in the previous year. The International Monetary Fund (IMF) imposed stringent preconditions on Pakistan this week to activate the frozen $6 billion rescue plan for the cash-strapped nation. Pakistan’s government responded by sharply increasing fuel prices.
Recently, the prices of all petroleum products went up in Pakistan by Rs.14-19 per litre after the government’s decision. Since the current administration took office in April, there have been four price increases for gasoline. To restart the delayed bailout programme, the IMF has set stringent prerequisites including raising power rates and enforcing a tax on petroleum items. The international lender also requested that Pakistan form a task team to examine all current laws to prevent corruption in government agencies. The IMF would next present Pakistan’s proposal to its executive board for approval of the loan tranche and resumption of the programme, a process that might take another month. With increasing inflation, declining foreign exchange reserves, a widening current account deficit, and a sinking currency, Pakistan is experiencing growing economic difficulties.
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In order to restart the $6 billion assistance package that had stalled and open the door to funding from other foreign sources, Pakistan reached an agreement with the IMF on June 22. The make-or-break agreement was struck after the authorities promised to raise an additional Rs 43,600 crore in taxes and gradually raise the petroleum duty up to Rs 50 per litre, according to the publication. The Pakistani team was led by their Finance Minister Miftah Ismail. A $6 billion extended financing facility deal for a 39-month period was agreed upon in July 2019. Only 50 per cent of the guaranteed sum has been paid out thus far. The facility’s resurrection will provide Pakistan access to $1 billion right away, which it desperately needs to supplement its depleting foreign exchange reserves.
The compound effect of all these developments is creating more problems for Pakistani citizens. There is a power crisis and water crisis which have been covered in detail previously. But Pakistanis are not happy with the way things are functioning in their country. Petrol and gas price rise is making life more difficult for people in the economically weaker sections of society. Inflation and unemployment are taking the country towards a collapse, which may turn into a Sri Lanka-like crisis. Recently, people in many parts of Pakistan have protested against the frequent power cuts and the water crisis in dry regions. The Shehbaz Sharif-led administration is at present faced with two major obstacles: stabilising the economy of the nation and maintaining popular support in the run-up to Pakistan’s next general elections. Sharif is aware that Imran Khan has certain agendas as weapons through which he will attack the coalition administration in addition to his ongoing complaints about being “controversially” removed from office in April of this year. The quick restart of the IMF’s financial programme might save and deliver some economic stability to Pakistan, which could be projected as a victory for the coalition government in the next elections. A survey conducted by the Islamabad-based Institute for Public Opinion Research (IPOR) found that 33% of respondents thought the economy had improved during the time that Imran Khan-led the Pakistan Tehreek-i-Insaf (PTI) while 43% of respondents complained about unfavourable economic conditions. At the same time, 55% of respondents urged the current administration to curb inflation.