Pak economy continues to remain in shambles due to structural imbalances

INTERNATIONAL DESK: Pakistan’s economy continues to deteriorate due to structural imbalances as several decisions regarding the economic policies like taxes, subsidies etc in the South Asian country have remained unaddressed over time, Dr Sakariya Kareem said while writing for Asian Lite.

Islamabad’s foreign exchange crisis has worsened as reserves have been depleted to a critical low of USD 8 billion, compared to over USD 20 billion in August 2021, undermining the country’s ability to make international payments.

Foreign Direct Investment (FDI) fell by 52 per cent in the first four months of the current fiscal year FY23, showing the country’s dismal economic health. A sustained drop in remittances is adding to Pakistan’s currency woes.

Remittances totalled USD 9.9 billion in July-October 2022, down 8.6 per cent from USD 10.827 billion in the same period last year. If the current trend continues, overall remittances in FY23, which ends in June, are expected to be close to USD 30 billion, down from USD 31 billion in FY 2022, Asian Lite reported.

Meanwhile, Pakistan’s textile exports have fallen to a 17-month low since May 2021, owing to a global economic slowdown in textile and clothing demand in Europe, the United Kingdom, and the United States, as a result of elevated price inflation, rising energy expenditure, and surging credit costs in the West.

Pak export earnings reached a historic high of USD 19.35 billion last year. However, the export outlook for this year remains bleak due to the foreign reserve crisis. Pakistan’s textile exports may fall by USD 3 billion, according to Asian Lite.

Although the overall trade deficit of Pakistan shrank to USD 10.8 billion in the first four months of FY 2023 as compared to the deficit of USD 13.75 billion in the same period of the previous fiscal year, there is no reason for complacency as it is primarily due to decline in imports which is a sign of economic slowdown.

Despite Pakistan’s finance minister Ishaq Dar’s repeated assurances for Sukuk payment, the international market is not willing to trust the assurances as the nation’s economy struggles to avoid default by borrowing more from the markets, donors, commercial banks and friendly nations.

The talks between IMF and Pakistan government due to begin in early November have been postponed until the third week of November, Dawn reported. The talks will resume after Pakistan works on its commitment to adjust sales tax on petroleum products and takes other measures needed under a loan agreement revived earlier this year.

Officials sources, who spoke to Dawn, revealed that the talks between IMF and Pakistan were rescheduled after World Bank’s report on flood damages in Pakistan which was released in October. Pakistan is due to pay USD 1 billion on December 5 against the maturity of five-year Sukuk, or Islamic bonds.

Despite Pakistan’s finance minister Ishaq Dar’s repeated assurances for Sukuk payment, the international market is not willing to trust the assurances as the nation’s economy struggles to avoid default by borrowing more from the markets, donors, commercial banks and friendly nations.

The financial sector has stated that the Fund was calling for new taxes to increase liquidity and avoid fiscal deficit expansion. The government needs at least Rs 800 billion, which as per the report could be achieved through new taxes which could be difficult for the government amid the economic situation and political turmoil.

Pakistan has been gripped by political turmoil since Imran Khan was removed from office through a vote of confidence in April. Pakistan Tehreek-e-Insaf Chief Imran Khan accused the United States of planning his ouster. (ANI)