Economic collapse looms for Pakistan as IMF delegation visits

Islamabad: With the International Monetary Fund (IMF) kick-starting the process of evaluating the Pakistan economy for a possible financial bailout, the troubled South Asian country is struggling to contain a major economic crisis.

A delegation from the IMF is scheduled to hold a meeting with senior officials of the Pakistan government on Tuesday.

Pakistan has been hit by a major economic crisis over the past several months. The Pakistani rupee has hit a record new low at 270 per dollar. Fuel and gas prices have also hit new highs amid soaring inflation.

The make matters worse, mismanagement and corruption has ensured that Pakistan is yet to recover from the devastating floods that had engulfed around a third of the country last year.

With elections due to be held in October, the ruling coalition in Pakistan has been trying to avoid hiking tax rates and reducing subsidy.

However, with Pakistan in desperate need of yet another loan from the IMF, the government led by PM Shehbaz Sharif has started to implement a slew of harsh measures that may increase the hardships of the common people.

The subsidy on fuel has been pulled back, resulting in record high prices while the government has also decided to let market forces decide the price of the Pakistani rupee.

Former World Bank economist Abid Hasan has warned that Pakistan is in danger of facing a fate similar to Sri Lanka is urgent steps are not taken to avoid bankruptcy.

“We’re at the end of the road. The government has to make the political case to the public for meeting these (IMF) demands,” Abid Hasan was quoted as saying by AFP.
“If they don’t, the country will certainly default, and we’ll end up like Sri Lanka, which will be even worse,” he added.

Sri Lanka defaulted on its debt last year and endured months of food and fuel shortages that sparked protests, ultimately forcing the country’s leader to flee overseas and resign.

The Pakistan has suffered a further setback as industry has been hobbled by the imports block and massive rupee devaluation.

Public construction projects have come to a near complete halt while textiles factories – a pillar of the Pakistan economy – have partially shut down while domestic investment has slowed down.

Last month, State Bank Governor Jamil Ahmed had said that Pakistan will have to pay up $33 billion in loans and other foreign payments before the current fiscal year ends in June.

Meanwhile, Pakistan is plagued by a severe energy shortage which has compounded the misery of businesses and common citizens.

The whole of Pakistan was plunged into a day-long blackout last week due to a fault in the national electricity grid that followed a cost-cutting measure.

The economic crisis in Pakistan mirrors the chaos in the country’s political arena, with former Prime Minister Imran Khan heaping pressure on the ruling coalition with countrywide campaign in his bid for early elections while his popularity remains high.

“Even if Pakistan avoids default, the underlying structural factors that triggered the current crisis — one exacerbated by poor leadership and external global shocks — will still be in place,” Michael Kugelman, the director of the South Asia Institute at the Wilson Center in Washington, said in a tweet.
“Barring difficult, large-scale reforms, the next crisis could be just around the corner,” he added.

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