Muhammad Radaqat, a 27-year-old greengrocer, is worried. He doesn’t know how much onion will cost next week, let alone how he can afford the fuel he needs to heat his house and keep his family warm.
“All the government is telling us is that things are going to get worse,” Radaqat told CNN.
His anxiety reflects the mood of a nation racing to stave off economic collapse. Faced with a shortage of the United States dollars, Pakistan only has enough foreign currency in its reserves to pay for three weeks of imports.
Thousands of shipping containers are piling up in ports and the cost of basic necessities like food and energy is skyrocketing. Long queues are forming at petrol stations as prices fluctuate wildly in the country of 220 million people.
A nationwide blackout last month made people even more alarmed. It brought Pakistan to a standstill, plunging residents into darkness, shutting down public transport networks, and forcing hospitals to rely on backup generators. Authorities have not identified the cause of the outage.
Pressure is mounting on Prime Minister Shehbaz Sharif’s government to release billions of dollars in emergency financing from the International Monetary Fund, which sent a delegation to the country this week for talks.
Pakistan’s currency, the rupee, has recently fallen to new lows against the US dollar after authorities eased currency controls to meet one of the IMF’s loan conditions. The government had resisted IMF-requested changes, such as easing fuel subsidies because they would lead to further price spikes in the short term.
“We need the IMF deal done as soon as possible to allow us to salvage the ship,” said Maha Rehman, an economist and former head of analysis at the Pakistan Economic Research Center.
Pakistan is experiencing what economists call a balance of payments crisis. The country spent more on trade than it brought in, depleting its stock of foreign exchange and weighing on the value of the rupee. These dynamics mean that interest payments on the debt of foreign lenders are even more expensive and push the cost of importing goods even higher, necessitating even greater drawdowns from the reserves which aggravate the distress.
The country is also grappling with runaway price hikes. The country’s central bank raised its key rate to 17% in a bid to quell annual consumer inflation by nearly 28%.
Some of the problems facing the country are specific to Pakistan. Political instability and efforts to prop up its currency, for example, have weighed on investment and exports, according to Tahir Abbas, head of investment research at Arif Habib, the country’s largest securities brokerage.
Last summer’s historic floods also led to huge bills for reconstruction and aid, adding to pressures on the government budget. The World Bank has estimated that at least $16 billion is needed to deal with damages and losses.
Yet global factors are making the situation worse. The economic slowdown has weighed on demand for Pakistani exports, while a sharp rise in the value of the US dollar last year has weighed on countries that import large volumes of food and fuel. Prices for these products had already skyrocketed due to the pandemic and Russia’s war in Ukraine, necessitating greater spending.
The IMF has repeatedly warned that this could stress vulnerable economies. While he expects emerging and developing market economies to see a slight acceleration in growth this year as the dollar depreciates its peaks, global inflation is falling and the reopening of China is boosting demand, the ability to manage the debt burden remains a concern.
He estimated this week that 15% of low-income countries are already over-indebted, while a further 45% are at high risk of struggling to meet their obligations. Another 25% of emerging market economies are also high risk. Tunisia, Egypt, and Ghana have all requested IMF bailouts worth billions of dollars in recent months.
“The combination of high debt levels due to the pandemic, weaker growth, and higher borrowing costs exacerbates the vulnerability of these economies, especially those with large short-term dollar financing needs. the term,” the IMF wrote in its Global Economic Outlook this week.
For Pakistan to avoid default, talks with the IMF to revive its stalled aid program must succeed, investors and economists say. The IMF delegation arrived on Tuesday and is expected to stay until February 9.
“The availability of the IMF loan is critical,” said Ammar Habib Khan, a nonresident senior fellow at the Atlantic Council.
But Farooq Tirmizi, the CEO of Elphinstone, a start-up aimed at Pakistani investors, said that even if the IMF program resumes, it will not solve all the problems because the main problems plaguing Pakistan are “not economic, but political, with a government in place that is unwilling to make structural changes.
Pakistan’s economic crisis was at the center of a political showdown between Sharif and his predecessor, Imran Khan, last year. Khan was ousted in a vote of no confidence in April after Sharif accused him of economic mismanagement.
The situation has remained turbulent ever since. Pakistan has had three finance ministers in less than a year. The latter two were in the current government, raising questions about whether Sharif can retain power. The country is expected to hold general elections this summer.
The uproar comes as Pakistan faces a new wave of attacks by militants. Earlier this week, a suicide bomb ripped through a mosque in the city of Peshawar, killing at least 100 people. It is one of the country’s deadliest attacks in years.
People are suffering while waiting. Farmers who lost crops of cotton, dates, sugar and rice to the floods still need help. The World Bank predicted in October that as many as nine million Pakistanis could be pushed into poverty without “decisive relief and recovery efforts to help the poor”.
High inflation only compounds the pain for households struggling to make ends meet. Food prices in January were up 43% year-on-year, according to data released this week.
Attention has recently focused on a man from the southern province of Sindh who lost his life in a scramble for a sack of subsidized flour distributed by local authorities. He was crushed to death by the crowd at his side.