Pakistan is staring down the barrel of bankruptcy, as the country’s economic

situation worsens with no end in sight and a worsening cost of living crisis.  

Pakistan's foreign exchange reserves have been depleted to a critical level of

under $9 billion, and the country has less than six weeks of import cover left. The
Pakistani Rupee (PKR) has been on a free fall, crossing PKR 212 per USD on 21
June 2022, having been devalued by 34% in the last year. Consequently, the PKR
has been labelled Asia’s worst-performing currency in 2022.

The Pakistani government has also recently increased the prices of fuel for the
third time in the past month, in order to meet the International Monetary Fund’s
“conditionalities” to secure a bailout package. As a result of the price increases,
there have been reports of cab services, restaurants, and home delivery services
closing down across the country. Petrol and diesel prices have risen by a record
56% and 83% respectively, burdening the common people. 

Increasing energy tariffs

The IMF has placed tough prior conditions on Pakistan, including increasing
energy tariffs, terminating the government’s role in determining gas prices, and
pushing the cabinet to impose a petroleum levy of PKR 50 per litre to collect a
total of PKR 855 billion. It has also asked Pakistan to set up an anti-corruption
task force to revamp the existing anti-corruption legislature.

The economic turmoil has played a role in deepening the political crisis in the
country. Prime Minister Shehbaz Sharif blamed the former PM Imran Khan for
instituting policies that have damaged Pakistan’s economy, while the latter spoke
out against the current Sharif-led government for “succumbing to IMF pressure”,
and called for nationwide protests against the increasing prices of fuel and food
and the rising cost of living. 

Rising prices, a shortage of basic necessities, the closure of small enterprises,

and an intensifying political crisis might cause Pakistan to default for the second
time in its history. IMF assistance and emergency loans from friendly nations
won't be enough to ease Pakistan's economic troubles permanently, say
commentators. Take our Cost of Living survey and contribute to wage
information on Pakistan.

After failing to secure financial grants from its allies and the International
Monetary Fund and with the overhanging burden of repayments of loans,
Pakistan looks to be on the verge of declaring bankruptcy. While the incumbent
government fears losing popularity by administering inflationary policy measures,
Pakistan’s economy seems to have no other alternative. On top of that, former
Prime Minister Imran Khan, who was ousted on the grounds of the similar claims
by the opposition, threatens country-wide protests against the soaring inflation
and other policy measures by what he dubs to be an “imported government.”

To avoid insolvency, last month, Finance Minister Miftah Ismail reached an

agreement with the International Monetary Fund to extend the long-standing
bailout program by one year and increase the loan size by approximately $2
billion. However, the agreement was subject to final modalities, and the IMF
instructed Pakistan to administer steep fiscal adjustments, discontinuation of the
amnesty scheme, increase fuel prices, increase power tariffs, and restore taxes
before the country could expect to secure the loan. 

Read more: Daunting economic challenges of Pakistan

After the meeting with the IMF, the Finance Minister advocated revisiting the
prices of petroleum products and reducing the subsidies given on them.
However, PM Sharif looked set only to enforce populist measures and refused to
raise the fuel prices. 

Now, as the second stench of the incumbent government’s meeting with the IMF
is expected to begin in Doha next week, the incumbent government would be
forced to remove subsidies on petroleum products from May 15, or the IMF is
likely to default on extending a fund to support the crumbling economy. 

Currently, Pakistan’s inflation rate has accelerated to 13.37% – the second-

highest in Asia after Sri Lanka, which recently declared bankruptcy and at present
is embroiled in political turmoil. Moreover, as Pakistan repays loans to avoid
burgeoning interest rates, the State Bank of Pakistan reserves have decreased by
$190 million to $10.308 billion – enough to support approximately two months of
imports. In addition, the rupee is trading at its lowest, and the bourse also
witnessed one of the steepest drops in its history as it tumbled five percent in
just over two months. Finally, commodity prices are also soaring, and the weekly
sensitive price index that defines inflation is 15.85% up.

Read more: Shabbar Zaidi claims speech on Pakistan’s bankruptcy is being

misreported
Reacting to the policy inaction of the incumbent government Asif Ali Qureshi,
chief executive officer at Optimus Capital Management Ltd., said Sharif’s
“inaction is taking its toll on the economy.” He added, “Political considerations
are weighing heavily on the government’s ability to make tough economic
decisions.”