Pakistan Economy: News & Discussion

[Lord Darklord]

Dealers move to arrest rupee fall | The Express Tribune

ECAP decides to let currency depreciate gradually after rupee hits 252.5 to a dollar

tribune.com.pk

 

[Indx TechStyle]

Pakistan staring at loan default, economic collapse
Pakistan is facing a grave economic crisis with loan default staring in its face and the IMF ready with tough economic conditions for providing financial assistance.

Pakistan is battling to fix its economic and political fissures amidst the political rivalry between former premier Imran Khan and the current government.

Pakistan’s media has taken external affairs minister Subrahmanyam Jaishankar’s invite to his counterpart Bilawal Zardari for the Shanghai Cooperation Organization (SCO) foreign ministers meeting in May as a sign of thaw with India post PM Shehbaz Sharif’s offer of dialogue with India, facts on ground are to the contrary.

PM Sharif made the conditional offer on January 17, 2023, in an interview with a UAE channel, Jaishankar’s invitation letter was sent on December 24, 2022 via diplomatic channels. As the President of SCO in 2023, it is India’s duty to invite all the SCO members in the run-up to the SCO summit later this year.

Even though the votaries of India-Pak dialogue and the conflict resolution industry in India have also painted a similar picture as their Pakistani counterpart, there is no change in India’s bilateral stance with Pakistan. The message is simple: End cross-border terrorism to talk and normalize relations.

Given the state of Pakistan’s economy and political flux in the highly radicalized Islamic Republic, Islamabad’s top priority is financing-debt relief for the beleaguered nation. Faced with tough IMF conditionalities for loan to Pakistan, Islamabad has now approached Washington to ask the Bretton Woods institution to go soft on the Islamic Republic as it requires PM Sharif to raise electricity tariffs and impose more taxes to raise revenue. Such draconian steps would be politically disastrous for the present PDM regime and give a handle to arch-rival and rabble-rouser Imran Khan Niazi.

Pakistan has not just run out of money but also out of ideas on how to save the state which is starting to unravel at an alarming pace. If it was only the economy that was on the brink of bankruptcy, things wouldn’t be so bad. But not only is the economy melting down, but the polity also is totally polarized and pulling the country apart, social cohesion and coherence are broken, and the security situation is spinning out of control because of the belligerence of the Taliban.

The poly-crisis that Pakistan is facing is worsening by the day because each component crisis is reinforcing the other one and there is no clear off-ramp for the present regime. Simply put, Pakistan is drowning but Pakistanis seem to think they will swim out of these troubled waters because the world can’t afford to see them sink. But the world doesn’t seem ready to bail out Pakistan until and unless Pakistan is ready to help itself. Pakistanis are however more preoccupied with the political circus in their country than with the sweeping economic reforms that could pull them out of the hole in which they have fallen.

The excesses of the Pakistani elite politicians, military personnel, civil servants, landed gentry and business and trade organisations – who captured the state and its resources have reached a point where the economy has touched rock bottom. The focus at this point is on trying to avert default which will lead to the economy incinerating and unleashing in its wake an uncontrollable civic and political mess. While there is no doubt that default will cause unbearable pain, the incorrigible Pakistani elite is trying to terrify the rest of the world to ensure that Pakistan's economy stays afloat. Just like they tried to use the floods as a bargaining chip to get the international lenders to cut them some slack, they are now using the imminent economic implosion as a bargaining chip.

Basically Pakistan is scaring the world by waving the threat of nuclear weapons going loose, and radical Islamists running wild and taking over the country in a revolution. Scary as they are, these fears being sold by Pakistan are exaggerated as in the past. Pakistanis might romanticize revolution, they don’t have the stomach for any such thing, least of all an Islamic Revolution which will hit elite privilege the worst.

Even so, the economy is now at a dead end. If the IMF program gets back on the rails, it will postpone the economy going belly up for a couple of months, probably by the end of the current financial year till June 2023. Pakistan needs around $10 billion over the next six odd months. With the IMF program, they will just about manage to collect this amount with the Saudis giving around $2 billion, the UAE another $1 billion, the Chinese giving a couple of billion and Qatar buying some assets for around $2 billion. But this will last only till June.

In The next financial year, Pakistan will need another $30 billion or more. Will the same friends keep pouring money into Pakistan endlessly? Already, the IMF is imposing very onerous conditions for restoring the extended finance facility program. The result of these conditions will not just be politically ruinous but financially devastating for the people.

Inflation is expected to go up to anything from 40-50% because fuel prices will shoot up, power tariffs will be jacked up and gas rates will spike. In addition, the Rupee will collapse. According to currency traders, the moment the Rupee is allowed to float, it will depreciate from the artificial level of 230 to around 260-270. Some analysts fear that the Rupee could breach the 300 mark in a couple of months. This will result in massive inflation which is already backbreaking.

To control inflation, Pakistan will have to raise interest rates. This will raise the cost of doing business to unsustainable and unviable levels. But even worse, interest rate hikes will destroy whatever remains of the fiscal position of the government. There is a real danger that even at the current interest rate of 17%, the debt servicing cost will be more than the entire revenue of the federal government.

The stark reality staring Pakistan in the face is that default is inevitable. It is not a question of if but when it will happen. The only feasible option is to seek a debt rescheduling. But this is almost as bad as a default because it comes with such stiff riders that will make the current IMF conditions look soft. Pakistani politicians and military leadership have however been hoping the storm will pass them by.

Clearly the Pakistani elite and the generals want the rest of the country to be prepared to render sacrifices but are not ready to cut their own expenses or privileges. They want their royal protocol, their golf courses, their holidays in Dubai, send their kids to Western universities, receive unconscionable subsidies from the empty coffers of the state, but deny the ordinary citizens of Pakistan even the basic right to life.

The Pakistan Army is also not ready to cut its costs. It continues to buy expensive weapon systems which Pakistan can no longer afford. Even worse, it continues with its strategic adventures on both sides of the border which have proved to be unaffordable. The only way the military budgets can be cut is if the strategic environment improves and relations with India and Afghanistan are normalized without any legacy conditions and action on terror groups based in Pakistan.

The Rawalpindi GHQ, however, this isn’t happening because the military has no appetite for making a paradigm shift in the strategic orientation towards India and Afghanistan. In the past, the tactical adjustments did create space. No longer. New Delhi has become wise to Pakistan's wiles and doesn't feel the need to reciprocate to tactical moves that only benefit Pakistan. The Taliban, in any case, are now showing their true colours and it increasingly looks like Pakistan's western borderlands will remain disturbed and destabilize as well as radicalize the entire region.

Quite like the military, the political class is more interested in saving its political capital and securing its political future than they are in saving the country or its future. At a time when the country is on the verge of collapse, the political jostling is bizarre. Imran Khan wants immediate elections which he thinks he will sweep. The ruling combine wants to delay elections as long as it can because it has nothing with which it can go to the hustings. The Army doesn’t want to disturb democracy but wants to keep calling the shots. It also doesn’t want to see Imran Khan come back to power, at least not immediately, and is ready to stop him by hook or by crook.

For now it seems the government will sign on the dotted line and get back on the IMF program. But within a month or two, it will start throwing money to win back its political support. This means that by the time elections are held and a new government is in power, Pakistan will be in the midst of an even worse crisis than the one in which it finds itself. In other words, no matter how you cut this up, Pakistan's economy and with it the current state and political structure are headed for a collapse.

 

[Hari Sud]

Let us Laugh at Pakistani Generals & Politicians

The financial stress which both Pakistani Generals and Politicians have created is very laughable. This stress would have happened 30 years back but each time Pakistani elite (Generals, Politicians and Businessmen) manipulated the US for money. They grabbed a huge sum of money and military hardware on account of Soviet Invasion of Afghanistan. It was $15 billion they grabbed (in today’s dollars $30 billion) and which kept their economy going from 1982 onwards. It stopped in 1995 except financial aid for 3.5 million Afghan refugees continued.

The military aid started all over again after 9/11 when US General Colin Powell sympathized with Pakistani General Musharraf and persuaded The US Congress to open the military and economic aid floodgate. The US knew all along that Pakistan is playing a double game of hiding Osama Bin Ladden and helping US to fight the Afghans. This lasted 14 years and the amount of money they dumped in Pakistan as financial aid amounted to $30 billion in today’s dollars. This much money kept Pakistan going year after year.

It was that when Trump got elected in 2016 that he understood Pakistani double game plan and cut off all aid both financial as well as military. Now the bad times began…….. Pakistan to grab Kashmir was maintaining a 600,000 men strong Army and 450 fighter strong airforce (all funded by US). That the military alone needed close $45 billion, although they showed $12 billion (Stockholm research). Rest was hidden elsewhere in other ministries as unknown expenditures. Anything short was funded by Army owned Fauji Foundation business enterprises. The Army was never short of funds.

Realizing their precarious financial position and no US aid, they turned to China. The Chinese welcomed them with open arms and began funding a highly costly and very much useless CPEP for $60 billion. The road has no commercial value but Pakistan welcomed money and Chinese were glad to have a client for 6% commercial interest rate. We do not know whether Pakistanis knew it or not in the contract that stipulated that only Chinese labour will be used. That means whatever material and labour used ends back in Chinese pocket. It was a loose - loose position for the Pakistanis. Road generated no income to the Pakistanis in 8 years of construction. What it generated was a huge interest payment on Chinese loans and Pakistani people displeasure.

Someone said a long time back that the Pakistanis are not financial wizards. They were right. They forgot to understand that all loans have interest payments and they come due and have to be paid back. For the last three years, they were borrowing from one and paying the other; otherwise there will be a Sri Lanka type default. This continued and the generals continued to buy military hardware and business men kept borrowing and spent on building large shopping centres & homes and little bit on import of raw materials and machinery to keep the industry going barely.

Early last year, it became known that Pakistanis are depleting their foreign reserves rapidly. It stood at about $20 billion early in the year and depleted to $3-5 billion by 2022 end. Now the situation was precarious. The Pakistani ran to IMF for aid. They will aid but attach a huge bunch of conditions. None of these conditions have been met hence that money has not arrived. The Paki PM ran to China, who would not suspend loan and interest recovery but offered a bit of aid but not enough. Their last choice was Arab World. The PM ran to Saudi Arabia and UAE for money. Reluctantly they offered some money and a bit of cheaper oil but not enough to bail Pakistani out.

At the above status Pakistan could default on any of their loan obligations. It is possible. Indirectly they are threatening anybody who comes to collect with their Nuclear Bomb; their ultimate weapon and negotiating threat. The Pakistani Foreign Minister (outspoken and young Bhutto) to Russia to get some cheap oil, which India is getting. This deal will threaten their restarting relationship with US; who will reconsider aid, in case Pakistan jumps fully to US side for the Ukrainian war.

Such is the pitiful Pakistani status. To grab Kashmir back, they built a huge army and setup a huge terror network and spent all their money on it. They forgot that money which is spent on the Army is actually needed for developing the nation. US has attached IMF financial conditions on curtailing expenditure and Chinese have spent money on road building but taken it back as material and labour costs. There is nothing Pakistani manufacture which they can sell in the international markets to earn money, hence nothing more than pitiful condition of Pakistan, all in the name of grabbing Kashmir.

 

[The Juggernaut]

Largest refinery shuts down | The Express Tribune

Lack of dollar inflows, rupee free fall restrict crude imports

tribune.com.pk

Largest refinery shuts down
Lack of dollar inflows, rupee free fall restrict crude imports


Our CorrespondentFebruary 04, 2023

A chimney emits fire at the PCK Raffinerie oil refinery in Schwedt/Oder, Germany, March 7, 2022. The company receives crude oil from Russia via the 'Friendship' pipeline. Picture taken March 7, 2022. PHOTO: REUTERS


Our Correspondent
February 04, 2023
a chimney emits fire at the pck raffinerie oil refinery in schwedt oder germany march 7 2022 the company receives crude oil from russia via the friendship pipeline picture taken march 7 2022 photo reuters
A chimney emits fire at the PCK Raffinerie oil refinery in Schwedt/Oder, Germany, March 7, 2022. The company receives crude oil from Russia via the 'Friendship' pipeline. Picture taken March 7, 2022. PHOTO: REUTERS
KARACHI:
Pakistan’s largest oil refinery has shut down for about a week due to the unavailability of crude oil as the US dollar shortfall and massive rupee devaluation hit its crude import capacity.

Cnergyico PK Head of Consumer Sales Syed Adeel Azam, in a letter to the Ministry of Energy (Petroleum Division) dated January 31, 2023, said “Cnergyico refinery (formerly known as Byco Petroleum) shall shut down from February 2, 2023 and will restart production from February 10, 2023 in line with our crude oil vessel arrival timeline”.

The refinery has installed processing capacity of 156,000 barrels per day of crude oil for the production of petrol, diesel, furnace oil and other petroleum products.

“The industry is on the brink of collapse if immediate steps are not taken in respect of arranging financing to ensure imports,” Oil Companies Advisory Council (OCAC) said in a letter to the Oil and Gas Regulatory Authority (Ogra) late last week.

“Due to the increase in oil prices and successive depreciation of Pakistani rupee over the last 18 months, the trade finance limits available from the banking sector have become inadequate. As a result of the recent devaluation alone, the LC (letter of credit/ import) limits have shrunk overnight by 15-20%,” wrote OCAC.

“It is requested that the banking sector be immediately requested through the State Bank of Pakistan to enhance the limit of our member companies (including Cnergyico),” the letter added.

Earlier, the refinery reported to the stock market in October 2022 that recent floods had washed out roads and bridges connecting the refinery to markets. They have adopted alternative routes, but that is causing serious losses in addition to the one incurred on account of rupee devaluation.

The company’s share price dropped 3.18%, or Rs0.13, and closed at Rs3.72 with trading in 7.49 million shares at Pakistan Stock Exchange (PSX) on Friday.

The company recorded net sales of Rs52.7 billion in the first quarter (Jul-Sept) of current fiscal year compared to Rs34.4 billion in the same period of last year, which was due to increased oil prices and sharp rupee depreciation.

“Extremely low refinery throughput resulted in a gross loss of Rs4.6 billion compared to the gross profit of Rs751 million in the same period of last year,” the company said in its first quarterly report.

 

[FalconSlayers]

As being said, Pak was always an aid driven country with no attempts to industrialise and educate the society. Pakistan was never ahead of India in any aspect and was always a sub modern community with GDP per capita then propped due to unforeseen factors. Like in case of Nigeria today which has a GDP per capita of $3k due to oil but living standards and development indicators at par those at $500.

May be you can scroll a bit back in time of 1960s and check out for such data then too to debunk? Pakistanis love to claim that Pak was some kind of Asian tiger back then.

May be you can scroll a bit back in time of 1960s and check out for such data then too to debunk? Pakistanis love to claim that Pak was some kind of Asian tiger back then.

 

[The Juggernaut]

In last 20 years, they lost one-third of productions of cotton, while India rose 3 times.

 

[ezsasa]

in our economy thread from time to time question pops up why should Indian state subsidise farmer's input cost, here is a comparison from paki land where they don't subsidize input costs, and one tomato costs 20 pkr.

argument can be made that if not subsidised basic food items end up being more costlier and there by impacting household spending.

edit : by the way GoI not only subsidises input cost, but also subsidises transport costs of basic food items when transported via train. that's how Indian railways spends more than 50k crores on subsidies.

 

[Haldilal]

Ya'll Nibbiars What destroyed Pakistan was not India’s demonetization but India’s implementation of OROP. Pakistan implemented the same, its armed forces pension is now 3 times it's civilian pension. It is our equivalent of Reagan’s Star Wars program.

 

[Hari Sud]

Ya'll Nibbiars What destroyed Pakistan was not India’s demonetization but India’s implementation of OROP. Pakistan implemented the same, its armed forces pension is now 3 times it's civilian pension. It is our equivalent of Reagan’s Star Wars program.

‘In short, it is Pakistani Army expenses, which is mostly hidden is destroying the country. All other subsidies have been curtailed or reduced.

Now IMF has gone back without an aid package, China is offering none and US is fully conversant with Pakistani double edged diplomacy.

 

[Hari Sud]

‘In short, it is Pakistani Army expenses, which is mostly hidden is destroying the country. All other subsidies have been curtailed or reduced.

Now IMF has gone back without an aid package, China is offering none and US is fully conversant with Pakistani double edged diplomacy.

They are left with one last option which the Pakistani Mullahs stated……. Quran in one hand and nuclear bomb in the other, they should pay a visit to wealthy Europe and America. I have a feeling that money will begin to flow in.

Ha…. Ha….. Ha.

 

[Sanglamorre]

They are left with one last option which the Pakistani Mullahs stated……. Quran in one hand and nuclear bomb in the other, they should pay a visit to wealthy Europe and America. I have a feeling that money will begin to flow in.

Ha…. Ha….. Ha.

I think they're going to become like that standard mercenary country in fantasy settings.

They'll send soldiers and material to where the USA commands them to it'll be like if the US MIC had a country.

 

[The Juggernaut]

Rating JUNK

 

[The Juggernaut]

Steel industry in trouble: PALSP

Struggling to stay afloat amid shortage of raw material, high inflation


Usman HanifFebruary 14, 2023

Photo: file
KARACHI:
The country is grappling with a major shortage of steel rebars as a result of the government’s failure to open Letters of Credit (LCs) for raw material required by the industry. Matters have been further exacerbated by the recent announcement of a rise in energy prices and an increase in the General Sales Tax (GST) as part of the International Monetary Fund’s (IMF) conditions.


The steel industry has declared that it is facing a major crisis as it struggles to stay afloat in the face of a devalued currency, rampant inflation and shortage of raw material. Despite its critical importance to the country’s economy, the industry is grappling with numerous challenges that are taking a heavy toll on its operations.
“The country is facing a severe shortage of steel rebars due to the State Bank of Pakistan’s (SBP) inability to open LCs for raw material required by the industry,” said Wajid Bukhari, Secretary General of Pakistan Association of Large Steel Producers (PALSP) in a statement.
“The steel sector is in the midst of unprecedented turmoil, with massive currency depreciation, shortage of raw material, high inflation and increased energy prices. The situation is extremely difficult and unviable for the steel industry to survive,” underlined Bukhari.
Speaking to The Express Tribune, steel sector Analyst at NBP Funds, Muqeet Naeem said, “The price of steel rebars have jumped by 50% in the past two and half months.”
“Under various heads, including quarterly tariff adjustment, deferred fuel price adjustment, and the imposition of a surcharge of Rs1 per unit on big power consumers, the government has approved a revised circular debt management plan (CDMP) where the tariff will rise by around Rs7-8 per unit until August 2023,” explained Bukhari, adding that this will have a direct inflationary impact of Rs7,000 per tonne, whereas the increase of GST from 17% to 18% will further have an impact of Rs3,000 per tonne.
Currently, the price of deformed rebars stands at around Rs305,000 per tonne, whereas inflationary pressures will warrant further price increases.
According to Bukhari, “The steel sector has been hit hard due to problems with the opening of LCs and the rapidly depleting foreign exchange reserves – resulting in a shortage of raw material.”
“The manufacturers are being forced to operate on very low capacity or to close their units, which has raised the cost of production and made it unviable for operation. The increase in the price of steel is also due to the massive devaluation incurred by the rupee, along with demurrage and detention charges on containers stuck at ports,” he added.
“Steel rebar producers have been raising prices since the beginning of this calendar year. They have raised prices by roughly Rs100,000 per tonne, or around 50% in the current year, out of concern that there will be a severe scarcity of raw material due to restrictions on the establishment of LCs,” noted Waqas Ghani Kukaswadia, steel sector Analyst at JS Global.
“This dramatic increase in rebar costs coupled with record high interest rates and inflation is expected to impact the demand of cement and other building materials as well as a result of which housing and flood reconstruction projects may face delays,” he further stated.
Published in The Express Tribune, February 14th, 2023.

 

[Lord Darklord]

Lifestyle recalibration

We are not done with the high inflation period. The worst is yet to come.

www.dawn.com

But people have to realise that we are not done with the high inflation period. The worst is yet to come and might continue for a few years, if not longer. For people who cannot move out of the country, who don’t have diverse income streams or foreign currency-denominated income streams, and who don’t possess savings in instruments that stay ahead of inflation (in gold or dollars), the tough times will get even tougher. Standards of living will have to come down substantially. And this will remain the case for the majority of people in the country for many years to come.

 

[The Juggernaut]

power supply is losing big revenue.

 

[ezsasa]

as has been said before, Pak govt may be getting into USD bankruptcy.
paki awam are having their litfests.
========
Pakistan’s Economy: Depth and Resilience

 

[Abbey]

‘Steel industry on brink of collapse’

ISLAMABAD: Pakistan’s steel industry is on the brink of collapse and now it is called upon State Bank of Pakistan to open up LCs and address the severe shortages of rebars in the domestic...

www.thenews.com.pk

 

[indiatester]

https://www.dawn.com/news/1740319

Lasting harm
Editorial Published March 4, 2023 Updated a day ago

TRACKING our economic predicament in recent months has been like watching a train wreck in slow motion. Despite the chorus of well-meaning voices asking him to act with reason and good sense, the finance minister stubbornly stuck to his guns on policies that were bound to put him in confrontation with the IMF till it was too late.

Few had believed him when he claimed soon after taking over that he could bend the Fund to his will. A country on the brink of default does not dictate terms to its creditors. He still went ahead with his ill-conceived approach. Instead of making a serious effort to address core imbalances in the economy, he wasted time needling the IMF and insisting on setting the terms of the bailout.

As a result, the ninth review of the funding programme, originally scheduled for October, remains pending even though foreign exchange inflows have rapidly dried up.

‘God-willing, next week’ is a refrain we have grown accustomed to hearing every few weeks from the finance minister. It was repeated again yesterday. Unfortunately, it seems that we may finally be out of time.

Default — once pooh-poohed as an irrational fear — is now appearing increasingly likely, however strenuously the finance minister may deny its possibility. Yet, nothing seems to humble the PML-N or Ishaq Dar.

They remain unwilling to acknowledge that much of the present mess is attributable to the bluster with which he has worked the finance ministry.

Miftah Ismail had at least seemed proactive about addressing Pakistan’s issues — something that insiders in Washington acknowledge. On the other hand, the IMF appears unwilling to trust Mr Dar, who seems to have a below-par understanding of Pakistan’s economic ailments and no stomach for needed reforms.

Thanks to him, we have reached a point where even IMF approval may not be enough to spare us further harm. Lasting damage has been done not only to the economy but also to the national psyche.

Faith in the country’s future — economic or otherwise — has evaporated. The vast majority do not have enough for three meals, and even better-off Pakistanis are vocalising fears about the country not having a stable future to offer them.

Our brightest young minds are planning to start a new life in foreign lands, having lost all hope in theirs. This damage will take years, if not decades, to reverse. The Sharifs had imposed Mr Dar on this country despite the vocal protestations of everyone who had witnessed his policies thoroughly discredited in the past.

They had ignored voices from their own ranks warning them of the disaster he could cause. They must stop insisting on supporting a man responsible for single-handedly ruining the future of millions of Pakistanis. The country must now be relieved of his burden.

Published in Dawn, March 4th, 2023

 

[Lord Darklord]

Oil industry warns of major fuel supply disruption

Terms weak rupee, interest rate hike ‘unsustainable’.

www.dawn.com

ISLAMABAD: The country’s oil industry is reportedly in serious trouble in arranging crude oil and petroleum products owing to foreign exchange constraints and prevailing product pricing, particularly following the recent currency depreciation and increase in the central bank’s policy rate.

 

[The Juggernaut]

Has IMF failed Pakistan?
Mohammad Zubair Khan Published March 10, 2023 Updated about 4 hours ago
PAKISTAN stands on the brink of default even as it remains engaged with the IMF at the tail end of a three-year programme. While the country’s economic woes are rooted in its own inept policies, IMF has escaped scrutiny of its stabilisation programmes that have failed to put Pakistan on a sustainable path in 22 attempts and certainly needing another programme immediately after this one concludes.

The journey to the brink has been a long one. Throughout the development experience of Pakistan, irresponsible government expenditures led to chronic fiscal deficits, mounting debt and rising interest payments, contributing to excessive domestic demand spilling into external imbalances and loss of reserves. With scant attention to competitiveness, export performance remained weak. Hence, Pakistan experienced persistent foreign exchange crises, forcing the country to seek IMF programmes. Each time, IMF programmes built reserves with borrowed funds, paying previous debts with new loans and arranging financing for foreign exchange shortfalls from various sources. Programmes were approved if creditors could be repaid, not necessarily if Pakistan would be able to stand on its feet.

But inevitably, crises re-emerged soon after the programmes ended because the fundamental issue of increasing foreign exchange earnings for import needs remained unaddressed or aggravated. The programmes failed to recognise that competitiveness is more than the real effective exchange rate in the post-WTO trading world.

Further, in its narrow focus on reducing fiscal imbalances through revenue measures of every kind, Fund programmes paid little heed to the impact of tax measures on investment, resource allocation, economic activity, export promotion and income distribution. As a result, exports remained stagnant, investment rates low and SMEs collapsed in recent years with rampant unemployment. Increasing allocations for income support programmes is neither sustainable nor a substitute for policies to support the robust growth of SMEs and agriculture.

During the current 22nd programme, Pakistan has largely followed the IMF stabilisation programme but like many democratic governments living and spending in the present while ignoring the medium-term consequences of accumulating expensive debt, both governments during the programme period failed to contain expenditures, which exceed 20 per cent of GDP.

With a blind eye towards expenditure growth, the IMF insisted on complex tax measures, ignoring their impact on economic activity and resource allocation to the detriment of growth and competitiveness. Consequently, as governments failed to achieve revenue targets, the IMF forced further stifling tax measures. Growth has slumped below 2pc, exports are declining further from a low level, aggravating the foreign exchange crisis, and inflation has steadily increased from single digits to a historical high of 40pc.

IMF’s dogmatic reliance on higher interest rates to contain inflation and attracting capital inflows to build reserves has proved unsuccessful, because private-sector spending in Pakistan, unlike in more developed economies, isn’t driven by credit, while short-term inflows are unstable for Pakistan, with long-term external liabilities.

Also, high interest rates have crippled industry and increased the burden on the budget; claiming Rs5.2 trillion, over 60pc of all tax revenues. While globally, post-2008 financial crisis, countries have pursued financial repression, keeping interest rates low in response to debt accumulation, IMF has prescribed ever-increasing interest rates in Pakistan, which have risen from 11pc to 20pc over three years, further contributing to increased public debt to over 80pc of GDP.

Despite high interest rates, inflation has steadily risen, raising the cost of doing business, and dampened investment and exports. The IMF prescription to protect interest incomes of banks and creditors from the erosion of inflation has rewarded the rich but failed to protect the poor from the burden of inflation. The most recent increase in interest rates of 300 basis points to 20pc has drained Rs600 billion from budgetary resources that the Fund prescribes to be offset by an increase in sales tax, a burden borne by the poor.

Even if Pakistan reaches an agreement with the IMF to avoid an imminent default before June 2023, the economic crisis would have been postponed, not overcome. And this would have been achieved through severe import controls that have left thousands of containers stranded in ports, closed down industry and reduced exports, besides creating shortages of essential medicines and food items. Looking ahead, Pakistan will need another IMF programme in July, but it must be a stronger homegrown adjustment programme or restructure its debt.

The writer holds a PhD from Johns Hopkins in political economy and has been on the staff of the IMF.

Published in Dawn, March 10th, 2023