Pakistan is facing one crisis after the other. There was a thorny political crisis faced by Imran Khan who was refusing to leave the prime minister’s office but somehow opposition alliance was successful in ousting the sitting prime minister with the vote of no confidence and Shahbaz Sharif was sworn to become the new prime minister of Pakistan. As a result, a huge economic crisis started looming over the country. The country is facing 6.4 billion dollars of debt, due over the next three years while the incumbent government is trying to meet the requirements to attain a bailout package by the International monetary fund organization. However, it’s not the first time that the country has been seeking a bailout package from IMF, rather it will be the 23rd time, but the real efforts at reform have been missing and the country is rolling back for the past five decades. The foreign currency reserves of the country are exhausting quickly. Pakistan has lost almost half of its reserves in the last few months. While the new fiscal year is on the way and Pakistan needs about 36 billion dollars of external assistance. According to a report published by Bloomberg, Pakistan’s currency is at its worst in all of Asia, currently devaluing at 8 percent in the last months. And this bail-out package from IMF and other countries has become imperative to the survival of the country. But to secure an IMF package is not simple as it comes with conditions when the country is already going through an economic crisis and these conditions of IMF are no less than a death wish for the new government. Some of these conditions include the legal reconstruction of the banking and tax system, decreasing the budget deficit, taking away electricity and energy subsidies along with less intervention of the state bank of Pakistan in the foreign exchange market.
There are several factors when we look at the causes behind the current economic backlash in the country. First and foremost is the large spending of the country on projects which are nonviable and contrary to growth in the country. It includes the metro bus project, orange train project, and several others. These projects are built on foreign loans but the irony is that these are not even self-sufficient projects, rather rely on huge subsidies from the government which is absolutely adding fuel to the fire of the economic crisis. Secondly, the relentless sinking of the Pakistani rupee against the dollar causes further troubles for the country as on one hand foreign debt is racing up while on the other hand, inflation is also increasing and the people are falling further below the poverty line.
Furthermore, the country needs to finalize the deal with IMF as other countries who have been lending money to Pakistan in past are also reluctant. These are the same countries that helped out Pakistan with its economic crisis back in 2018 when Prime Minister Imran khan asked for help. However, this time, as said by the current finance minister on 28th May, earlier China, Saudi Arabia, and the UAE were willing to give money to Pakistan but after this political turmoil and the delay in securing the IMF package, the same countries are reluctant now. Although the sitting government has taken very unpopular steps of heightening fuel prices in the country to meet the conditions given by IMF so that loans from IMF and other countries can be secured. Although these decisions have also put the ruling parties on the wrath of Imran khan who has claimed repeatedly his progress to secure cheap oil and gas from Russia and several other countries.
Pakistan is going through economic uncertainty and the country’s stock market is downsizing day by day. Further delays in securing an IMF deal will worsen the economic condition and in no time, Pakistan will be the next Sri Lanka. But the question arises what is the solution in these desperate times? The answer is not easy. Because the path to survival is not easy and further recovery is more difficult. One thing is certain, Pakistan do need this IMF deal and the help of other countries for its survival. To secure this deal the government has no other way to implement the conditions of IMF in letter and spirit. The government will have to sacrifice its vote in order to save the country from economic breakdown. But this is not the question as the country will have the IMF package and support of other countries sooner or later. But the real question is, whether the government will be able to lead the country to sustainable economic growth? Will the government be able to pass and enact necessary legislation and policies in the tax sector, especially for the rich and capitalist class of the country? Will the government be able to uphold good governance and make necessary reforms in the public institutions? Will the government is able to do the necessary evil acts of privatization of public-owned enterprises like PIA, and the steel mill that has been a grave burden on the public exchequer? These are very daunting tasks for any political party since Pakistan is being run through a coalition government with no public mandate. Therefore, it is the need of hour to take necessary steps in order to achieve economic stability, like increasing the export production and rebate tax on export industries, controlling the current and fiscal deficit of this budget, and huge tax collection especially from the people who have been out of tax net in the past, and reduction in imports to save rupee from crashing against the dollar, and then the government must hold general elections to get a fresh mandate. Because this coalition government is very weak to enforce any large-scale long-term economic policies.