Concerns are at peak over the health of Pakistan’s economy as foreign reserves run out, inflation stands at decades-high levels and industrial growth slows down, with experts and industry leaders raising alarm and calling on the government to take decisive action, particularly on a stalled IMF bailout plan.
The biggest worries center around Pakistan’s ability to pay for imports such as energy and food and to meet sovereign debt obligations abroad. Right now, foreign exchange reserves with the central bank stand at just $4.6 billion, barely enough to cover a month’s imports, compelling the government to restrict the import of goods, including industrial raw materials, to stop dollar outflows.
Before devastating floods last year, an estimated $33.5 billion was needed to fulfil external financing needs for the 2022-23 financial year, according to the central bank, to be arranged through the daunting target of almost halving the current account deficit and receiving debt rollovers from friendly countries.
But in the aftermath of the floods, exports have slumped and imports have grown to make up for essential commodities lost in the flooding of millions of hectares of farmland.
Meanwhile, the Pakistani rupee has weakened 20 percent since the start of the year and the decline in the currency is pushing up the cost of imports, borrowing and debt servicing, and in turn will further exacerbate inflation running already at a multi-decade high.
“The situation is alarming,” Tariq Yousuf, President of the Karachi Chamber of Commerce and Industry (KCCI), told Arab News. “More than 7,500 containers [of imports] are stuck at ports and our industries are facing an acute shortage of raw materials, bringing them almost to the verge of collapse.”
Last year, the cash-strapped country imposed a ban on the import of luxury goods to avoid a balance of payment crisis but lifted some of the restrictions after pressure from the industrial sector.
Experts warn that a dire dollar crunch in Pakistan may further hurt the import of essential items in the coming months and lead to a shortage of several food items. The fast-depleting forex stockpile has currently left banks refusing to issue new letters of credit (LCs) for importers, hitting an economy already squeezed by soaring inflation and lackluster growth. The central bank has also restricted overseas payments and halved the amount of foreign currency that a person can carry overseas to $5,000.
Qaiser Ahmed Sheikh, chairman of the standing committee of the National Assembly (NA) on Finance and Revenue, told Arab News Pakistan was in a “dire situation.”
“There are problems opening LCs, approved by the State Bank of Pakistan, affecting raw material imports.”
Without an LC as a financial guarantee to foreign exporters, import clearances rarely go through. Sheikh said thousands of import containers were stuck at various ports, which was affecting the manufacturing industry and fueling a fear of industrial closure and further inflation hikes.
The inflation rate in Pakistan is already worryingly high, recorded at 24.5 percent in December 2022, double the figure from around 12 percent in December 2021.
“Both industrialists and the masses are concerned that commodity prices are rising on a daily basis,” Sheikh said. “The inflation will increase further if the State Bank of Pakistan does not allow new LCs opening and the clearance of older LC contracts.”
