Pakistan economy undergoing tough phase

Pakistan economy is facing serious challenges in the wake of shrinking foreign exchange reserves, depreciating rupee and increasing inflation but default on $130 billion external liabilities is not on the cards, experts say.

Analysts, economists and former finance ministers said Pakistan's economy will survive 'regime-change' shock and remain on sustainable growth path in line with the reforms agenda set by the International Monetary Fund (IMF). However, they said the government should expedite its efforts to ensure foreign currency inflows from multinational lenders or friendly countries, otherwise it will have no option but to impose 'an economic emergency' and withdraw subsidies on electricity, gas and fuel to bring stability in the key economic indicators.

"Pakistan economy is passing through a tough phase and it will overcome the existing challenges soon. We are confident to fulfil all our commitments on external liabilities and default is not an option for us," according to an official at Pakistan's Finance Ministry in Islamabad.

Former finance minister and senior Pakistan Muslim League (N) leader Ishaq Dar also expressed similar views and said the country will not default on its liabilities.

"Pakistan can and will manage its commitments and there won't be any risk of default (InShaAllah)," Dar told Khaleej Times on Monday.

Shehbaz Sharif, who became Pakistan's 23rd Prime Minister on April 11 following a no-confidence against cricketer-turnedpolitician Imran Khan, is facing an uphill task to maintain the growth momentum despite rising oil and commodity prices. His finance team is expected to hold negotiations with the IMF team in Doha next week to restore the extended fund facility and get $1 billion of tranche following completion of seventh review of the economy.

Pakistan's foreign exchange reserves dropped to $16.55 billion on April 30. It includes $10.49 billion reserves held by State Bank of Pakistan (SBP) while $6.05 billion held by commercial banks, according to the latest data released by the central bank.

The reserves held by SBP have dropped by around $7 billion, or 40 per cent, approximately over the past four months. The central bank reserves hit an all-time high at $20.14 billion in August 2021, according to the central bank's data.

The rupee, which has come under renewed pressure due to a rebound in the international crude oil prices to over $110 a barrel, has also hit record lows against the US dollar and other major currencies in interbank and open markets recently. It shed another 0.5 per cent against the greenback in inter-bank market on Friday and closed at 186.63.

Inflation also increased to 13.4 per cent and it will go higher as full impact of food inflation, driven by international wheat and edible oil prices, is yet to be transmitted to store shelves. The situation may further aggravate when cap on fuel prices and electricity tariffs will be removed in coming days. Solid foundation laid "We have laid a solid foundation for Pakistan's economy by expanding the tax base and generating the highest ever revenues in the country's history. We will not default as exports and remittances are also touching record levels," former finance minister Shaukat Tarin told Khaleej Times.

In reply to a question, he said fresh elections are the only way to bring economic stability to the country.

"We should go for fresh elections as early as possible to clear uncertainty on political and economic fronts," he said.

In reply to a question, he said the government should take appropriate steps to roll over Chinese loans and urged the IMF to release $1 billion tranche after the successful seventh review as "we already met the fund's target in March".

"We should also speed up efforts to get disbursement of World Bank and Asian Development Bank's loans. Moreover, there is a need to cut luxury imports worth $1.5 billion every month to balance the current account deficit," Tarin said.

"We must ensure that export momentum should continue to achieve sustainable economic growth. The government should revive channels to get Russian wheat and gas on 30 per cent to 40 per cent discounts to ease pressure on the rupee and foreign exchange reserves," he added.

Muzammil Aslam, a Karachi-based senior economist, said economic uncertainty especially on foreign currency inflows has an adverse impact on the economy.

"Pakistan has never defaulted and always secure funding. But with the regime change, the new govt has failed to secure funding from the IMF and friendly countries," Aslam told. -APP