Pakistan is in final negotiations with the International Monetary Fund (IMF) and has secured the means to secure assistance to stem a deepening economic crisis that has nearly depleted its foreign exchange reserves. At normal levels, it has enough dollars to cover less than a month’s worth of imports and is struggling to service its very high external debt. The IMF team is due to leave the country on Thursday after ten days of talks with the government aimed at releasing vital international funds. Annual inflation hit 27% in January, the highest level in Pakistan since her 1975, raising concerns about the economy in a crucial election year.
Pakistan, like many countries, is suffering as a result of the coronavirus pandemic and Russia’s invasion of Ukraine, following which global fuel prices have soared. Pakistan relies heavily on imported fossil fuels and importing food has also become more expensive. If the rupee depreciates, fuel costs more, with knock-on effects for goods that are transported or manufactured. The government recently increased fuel prices by over 13% but says it’s not planning anymore. Imran Khan, who was ousted as Pakistan’s prime minister last April, came to power in 2018 promising to fix the economy. At the time he had vowed not to seek help from the IMF, but inflation soared and the rupee dropped.
As the climate warms and people use more electricity to run their fans and air conditioners, energy demand will increase, further straining the system and increasing the likelihood that Pakistan’s foreign exchange reserves will be nearly depleted. Trying to reach an agreement could mean painful political commitments, possibly including the abolition of energy subsidies. Mr. Hussain says a deal with the IMF will help the economy and government but at the expense of ordinary people. But he believes the biggest risk lies in the government reaching a deal with the IMF, starting to implement the plan, and then changing its mind.
