Politics /
Pakistan’s economy headed towards the nadir
The Shehbaz Sharif-led coalition government’s failure to secure electoral majority in the Punjab provincial assembly by-elections in July 2022 and the unexpected victory of the Pakistan Tehreek-i-Insaf (PTI) party has created an unprecedented situation in terms of political and financial consequences for Pakistan. The current government’s tough decisions on economic front to meet the IMF conditions have fuelled inflation and alienated the public.
Power and fuel prices have witnessed a sharp increase. Besides, an additional 10% super tax has been imposed on 13 industries including cement, steel, sugar, oil & gas, fertilisers, LNG terminals, textile, banking, automobile, cigarettes, beverages, chemicals and airlines. Average inflation is predicted to remain at 19% in the current fiscal year. While the opposing political parties continue to trade blame against each other for the current economic situation, the fact is that Pakistan’s economy is poised for a nosedive.
Rubbing salt to the wound, top credit rating agencies downgraded Pakistan’s credit rating that has led to erosion of confidence among foreign investors. International credit rating agency Fitch downgraded Pakistan’s outlook from stable to negative citing elevated political risks, deterioration in external funding position and depleting forex reserves. Moody’s also termed the agreement reached with the IMF ‘credit positive’ but questioned whether the government could afford to keep raising taxes on petroleum and electricity tariffs. It voiced concerns over Pakistan’s ability to complete the current IMF program and maintain a credible policy path for future financing.
Pakistan’s situation
With volatile global commodity prices fuelling inflation and high debt repayment obligations and imports depleting forex reserves, Pakistan government is now planning to borrow PKR 5.5 trillion from international lenders in 2022-23, 74% more than its budget estimates. In the four years since June 2018, the Pak government’s debt has ballooned from PKR 24.2 trillion to PKR 44.6 trillion as of May 2022. Overall, Pakistan’s external debt reached $78.3 billion as of May 2022.
Islamabad’s efforts to seek loans mainly from Saudi Arabia, besides deferred payment facilities on oil & gas imports from the UAE and Qatar, are yet to fructify as
these countries are also watching the current political situation. Pakistan is talking to Saudi Arabia for $1.2 billion in deferred oil payments. Besides, the Saudis are interested in buying the Pakistan State owned ‘Roosevelt Hotel’ in New York. This transaction could earn $1 billion. Pakistan also wants to sell one hotel in Paris, run by the SCRIBE Company. Pakistan government is hoping to fetch $1.5 to $2 billion on both these hotels. Qataris are interested in buying power plants that use Qatari imported gas.
UAE has shown interest in buying $2 billion worth of shares in Pakistani companies, with $1 billion worth on buy back guarantees. The UAE also bought Pakistan Telecommunication Company limited (PTCL) in 2005, but since 2019, the UAE (Etisalat) has held back $800 million amount over a property-transfer dispute with Pakistani government.
According to unconfirmed sources, a meeting was held between Pakistan’s Finance Minister and US Ambassador to Pakistan. During the meeting, Pakistan side seems to have conveyed to the US Ambassador that the Chinese were not willing to renegotiate increasing the tenure of the loan. They are also not interested in any negotiations on Return on Investment (ROI).
With the IMF pushing Pakistan to arrange $4 billion this month to fill the gap in foreign exchange reserves and the ‘hopeful’ deals with friendly countries not materializing anytime soon, Pakistan’s economy seems to be headed towards the nadir.
