Pakistan is facing a challenging economic situation that has resulted in a significant increase in fuel prices, which will further exacerbate the already-high inflation. The country’s government has released a mini-budget that includes a fuel price hike, which was one of the conditions of the International Monetary Fund (IMF) for unlocking a critical loan tranche.
The government hopes to reduce the budget deficit and broaden its tax collection net through these measures. However, these actions will impact the daily lives of citizens’ who are already struggling with the high cost of living.
The country is facing multiple challenges, including the recent bombing attack on a mosque that took many lives, nationwide blackouts, and a record-low exchange rate of the Pakistani rupee against the dollar. Endemic government corruption, depleted foreign reserves, and crippling debt have sent Pakistan’s economy into a downward spiral, leading to a hopeless situation for many citizens.
The IMF officials are in Islamabad to finalize the ninth review of the Extended Fund Facility (EFF) and unlock the $1.2 billion tranche for the country.
However, the IMF wants to see Pakistan’s government implement fiscal reforms such as a market-determined exchange rate for the currency and the reduction of fuel subsidies to deal with the current economic situation. Pakistani Prime Minister Shehbaz Sharif initially resisted making these changes due to the fear of a popular backlash.
The prospect of national bankruptcy forced him to bend, and the government lifted the artificial cap on the currency, causing a sharp decline in the rupee’s value. The government also raised fuel prices and the central bank raised interest rates to control inflation.
Pakistan’s economic situation is challenging, and the government has taken difficult steps to address it, including a fuel price hike. While these measures may help stabilize the economy in the long run, they will have a significant impact on citizens daily lives, who are already struggling with the high cost of living.
According to Kamal Madishetty, a researcher at the Institute of Peace and Conflict Studies in New Delhi, Pakistan’s current economic crisis is not just a result of recent political decisions, but rather, it is a reflection of deeper, long-standing issues. He believes that the military’s overwhelming control over all other institutions in the country is a significant factor.
Madishetty argues that the military establishment has historically received a disproportionate share of resources at the expense of ordinary citizens. He cites the example of military spending increasing by 11% in 2022, while areas like infrastructure and education faced budget cuts. He also suggests that the blame for Pakistan’s economic difficulties should not solely be placed on the current government, but rather on the people who have remained in power for extended periods.
Madishetty’s comments suggest that Pakistan’s economic crisis is not just a result of recent political decisions, but rather, it is the outcome of deeper, structural issues that require a fundamental change to be addressed.
In addition to its preexisting economic challenges and political instability, Pakistan has also been grappling with the devastating effects of climate change. The country experienced catastrophic floods in June of 2022, which submerged a third of the country, affected 33 million people, and caused billions of dollars in damage and economic loss.
This natural disaster has further exacerbated Pakistan’s already dire economic situation, along with the long-term impacts of the Covid-19 pandemic. As a result, the World Bank revised Pakistan’s growth projections in early January, lowering them from 4% in June 2022 to a mere 2% for 2023. The bank cited Pakistan’s “precarious economic situation, low foreign exchange reserves, and large fiscal and current account deficits” as the primary reasons for this downgrade.