With its economy on the verge of asphyxiation, with an ever-depreciating rupee, constantly rising inflation and energy shortages, Pakistan hopes to convince the International Monetary Fund (IMF) to provide it with much-needed cash.
An IMF delegation arrived in Islamabad on Tuesday to negotiate the disbursement of a new tranche of financial aid, under a program suspended for months.
Prime Minister Shehbaz Sharif did everything to avoid the IMF’s bitter potion – which called for an end to energy sector subsidies and foreign exchange market interventions, as well as higher taxes – for fear of pay the price at the ballot box during the legislative elections at the end of the year.
For months, he refused to comply with the institution’s demands, turning to friendly Gulf countries or China to obtain loans on better terms.
But the few new aids and payment facilities obtained have proved insufficient. And faced with the risk that Pakistan could find itself in default, it ended up yielding under the pressure.
The government finally agreed to let the market set the rupee freely, causing it to plunge last week to an all-time low against the dollar. Then he raised the price of gasoline, at the risk of further alienating voters.
“We are at the end of the road. The government must defend its policy and explain to the public why it accepts these demands. If it does not do this, the country will certainly default and end up like Sri Lanka, which would be even worse,” Abid Hasan, a former World Bank economist, told AFP.
Sri Lanka defaulted on its external debt in April 2022 and experienced severe shortages of food, fuel and medicine that sparked months of popular discontent and protests.
In Pakistan, time is running out, with Nasir Iqbal, an analyst with the Pakistan Institute of Economic Development, saying its economy has already “virtually collapsed” after months of mismanagement and political crisis.
The IMF team arrives in a country overcome by panic, which is struggling to recover from the catastrophic floods of last summer.
Discussions with the IMF relate to the resumption of disbursements of a staggered loan of $6 billion, granted in 2019 and later increased to $6.5 billion. Only half of this sum has been paid so far.
The country’s foreign exchange reserves now stand at $3.7 billion, barely enough to cover three weeks of imports.
Due to this shortage of dollars, banks refuse to open new letters of credit for importers, except for essential foodstuffs and medical products. Thousands of containers are thus blocked in the port of Karachi.
Industry has paid heavily for these blockages, particularly in the textile sector, where several factories have temporarily had to close their doors.
“The number of beggars has increased and that of manual workers has decreased,” notes Zafar Iqbal, a 55-year-old mason, who waits with dozens of other day laborers, carpenters and painters, on the cobblestones of a street in the main megacity of Karachi, in the south of the country.
“Inflation is so high that we don’t earn enough,” he adds.
At the pump of a service station, a widow accompanied by her son explains that they pay attention to each rupee spent on their motorcycle, both of them having to be content with eating twice a day.
“The prices are so high that we eat our breakfast late and our second meal in the evening around 7:00 p.m., with nothing in between,” says Ulfat, refusing to give his surname.
Pakistan faces recurring difficulties in repaying its huge debt. Central Bank Governor Jamil Ahmed said last month that the country must repay $33 billion in external loans and payments by the end of the fiscal year in June.
His diplomatic offensive saw Pakistan extend $4 billion in loans from lending countries, with negotiations continuing for another $8.3 billion.
The country also struggles with immense energy supply difficulties, due to poor infrastructure and faulty management.
Last week, a gigantic blackout, caused by economy measures, affected most of the country for nearly an entire day.
“Even if Pakistan avoids default, the underlying structural factors that triggered the current crisis, exacerbated by poor leadership decisions and global external convulsions, will remain in place,” Michael said on Twitter. Kugelman, expert on the region at the American think tank Wilson Center, in Washington.
“Without tough reforms on a large scale, the next crisis is just around the corner,” he added.
01/31/2023 10:33:22 – Islamabad (AFP) – © 2023 AFP