Pakistan And Sri Lanka economic Crisis

Cause of Pakistan Economic Crisis

The economic crisis in Pakistan was the major problem which Pakistan
wants to tackle right after the separation but the Political system of
Pakistan didn’t let the Pakistan to stabilize its economy the poverty rate
increases year by year right after separation. Our political instability
increases and the main reason the economic condition collapse because of
country instability and political situation. Why did Pakistan suffer? Major
factor is political instability example major war of Pakistan its tension
between India and the major separation of Pakistan with Bangladesh the
martial laws which led the country into huge mess and instability and
causes economic crisis
Our system didn’t let us to stabilize there are some other factors which
plays role of destruction
1. Energy crisis: The constant leading power cut-off challenge has
troubled the economy. Since the year 2000 this curse has wreaked
havoc on the overall economy. As admitted by Federal Minister for
Water and Power Khawaja Muhammad Asif during a National
Assembly session a few days ago that the power shortfall has exceeded
up to 5,000MW. Until energy lingering crisis is not resolved the
determined economic development is a far-off dream.

2. Terrorism: It is a huge stumbling-block for economic generation in

Pakistan. Since 2002 we are a war-torn country. The State Bank of
Pakistan report (2016) says that war on terrorism has cost $118 billion.
According to Global Terrorism Index (2016), out of 163 countries,
Pakistan stands 4th worst hit. This has long been a reason for Pakistan’s
negative international image which has limited the foreign investment
in the country.

3. Poor health facilities: The public hospitals depict bleak pictures where
we find lack of proper medicines, beds, equipment and etc. Due to
absence of basic health facilities, 170 women die from pregnancy for
 every 100,000 births. For every 1,000 babies born, 66 die before their
first birthday. In addition, approximately 44 percent children in
Pakistan are stunted. Every day, due to malnutrition and poverty
children are dying in Thar.
4. Tax evasion: Regressive tax system collects about 90 percent tax
revenue from common men. Big corporations, landlords, businessmen,
politicians do not pay their due share of taxes. They earn lot but pay
less tax; on the other hand poor earn less but are taxed more. Each year
billion rupees are evaded through tax havens established in foreign
counties. The incidences of tax evasion have hampered Pakistan’s
economic progress.
5. Pakistan debts: The main problem of economic crisis of Pakistan is its
debts. Pakistan had many debts of IMF, loans from China , saudia and
Many other countries the external debs causes Pakistan to increase the
inflation because of IMF and Pakistan loan agreement causes to
increase the prices of electricity and petrol and etc which led the
country to high inflation and made Pakistan more instable because of
debts and their restriction and their own policies for Pakistan tax
system
6. Pakistan Reserves: Time passes and the Foreign reserves of
Pakistan is declining day by day and decreases As Per state
bank Pakistan, s foreign reserves was 17 Billion dollars before
April 22 and after that reserves decreases and now after 8
months Pakistan have only 6.7 billion dollars in reserves and
which cause Pakistan instable very high because of this
economic crisis and financial crisis Pakistan is unable to pay
the Payments and many of the many import and export items
and which is Very serious not to pay the payments and
reserves decreases if this continues then Pakistan is very near
to Sri lanka situation our people cannot even get the petrol or
basic necessities if reserves decreases that way and debts
increases this way
7. Tax policies : Like in every country your tax policy does
mater to economy if your tax system is not good which is the
way to collect money from people then your economy may
suffer but Pakistan had the best Tax collection system in 2019
but after the government changes the tax policies also changed
and this tax policies is not that good
8. Corruption and Accountability: the main reason of Pakistan
is the non accountability of corruption like FATF restricts
Pakistan because of no good policies for Financial and money
laundering and corruption which led Pakistan to FATF grey
list and This cause many barriers of trade and cause many
financial problems for Pakistan,. To solve this matter Pakistan
needs to follow the policies and to grab the corruption and
make financial transaction safe as possible because if didn’t
happen Pakistan may go to black list which was dangerous but
The Pakistan government tackled this very well and Made
Pakistan white listed but still again The NAB amendments
which used for FATF policy are again cancelled and NAB
amendments are being demolished and again Pakistan is
moving towards the economic crisis and the same situation is
done with Sri Lanka and caused that country bankruptcy and
Pakistan is moving towards it
9. Political uncertainty: the political uncertainty in Pakistan is
the major setback for Economic condition Pakistan is only
suffering that economic crisis because f political uncertainty
like the government in 2022 april was sent home only of the
ego and the corrupt mafia needs to be happy again and after
this event you can analyze the political and economic situation
in Pakistan rises and fallen due to corrupt mafia and politics
10. Pakistan needs to have good relation but when the government
meets Russian government on official visit which can help
 Pakistan for oil problems and can make better foreign
investment from Russia is very good motive but for politician
they just keep Pakistan only in crisis and that time opposition
made that chance null and made the political unstable country
and didn’t let to take the opportunity for buying low cost fuel
11. Government, monetary expansion and inflation:
12. It is recognized by all quarters that Pakistan is suffering from a
high rate of inflation, and actual inflation is in fact much higher than
the officially recorded inflation due to inadequate and outdated method
of construction of price indices and their coverage. It is also generally
accepted that a high rate of inflation is very harmful for economic and
social stability and hurts the process of economic development. It is a
regressive form of taxation and worst enemy of financial savings and
long-term economic growth. It taxes the poor and
13. penalizes savers and subsidizes the rich and rewards borrowers,
and in the process transfers resources from the poor to the rich and
from saving to consumption.
14. As regards the causes of inflation, there may be some difference of
opinion on the initiating factors but ultimately inflation is a monetary
phenomenon whereby too much money chases too few goods and services.
Gottfried Haberler, one of the most renowned economists, had put it more
clearly that “there is no record in the economic history of the whole world,
anywhere or at any time, of a serious and prolonged inflation which has not
been accompanied and made possible, if not caused, by a large increase in the
quantity of money.” Proper regulation of money supply for the containment of
inflation is therefore of critical importance
 15.

Sri Lanka Economic crisis

2022 Sri Lankan political crisis:

The crisis in Sri Lanka is the worst in decades. Instead of the usual
hordes of enthusiastic tourists, the summer of 2022 in the small island
nation saw thousands of protesters flood the capital Colombo and take
over the presidential palace. Fed up with the current state of the Sri
Lankan economy, protesters forced President Gotabaya Rajapaksa to
flee and eventually resign. His departure on July 14 ended nearly 20
years of the family's political dominance. A few days later, Sri
Lankan parliamentarians elected Ranil Wickremesinghe—a six-time
prime minister—as Sri Lanka's new president, despite his
unpopularity with the public.
Why is Sri Lanka in crisis?
The roots of the energy and economic crisis and political upheaval go
back to years of economic mismanagement by various governments,
says Chair of Friends of the Earth International Hemantha Withanage
- a network of environmental organizations in 73 countries. “People in
the country are not satisfied with the political system. They demanded
that all 225 politicians in parliament, plus the president, go and let the
system be changed,” Withanage said in a podcast interview with
Energy Tracker Asia.
Since transitioning to a lower-middle income country in 1997, the
country has increasingly borrowed from private lenders at relatively
high interest rates and with much shorter repayment periods.
Before that, its debt mostly consisted of low-interest loans from
multilateral organizations.

Sri Lanka's deepening foreign debt

Sri Lanka's improved status has encouraged private lenders to lend it
money and venture capital funds to invest in infrastructure projects.
"We were getting soft loans from the Asian Development Bank, the
World Bank [and other multilateral banks] at 1% to 1.5% interest,"
said Withanage, who is also a co-founder of the Sri Lanka Center for
Environmental Justice. "But private equity lenders have invested in
Sri Lanka at 6% to 15% interest rates. So today more than 50% of Sri
Lanka's [debt] belongs to these private lenders,” he said.
The 2020 pandemic has hit the small island nation hard, as have other
developing countries, as dollars and foreign currency that previously
came in through tourism and migrant workers abroad have dropped
significantly. Foreign exchange reserves have dried up. "By
September 2020, Sri Lanka has already surpassed the debt
sustainability level it was at the start of the current regime. This
means that the debt unsustainability problems started under the
previous regimes,” explained Withanage.
As tourism finally began to recover in the spring of 2021, Sri Lanka
decided to ban the import of chemical fertilizers, claiming the move
was aimed at the country's transition to organic farming.
In reality, the government did not have the money to buy fertilizer,
Withanage claims. This hasty decision, which was later reversed,
caused food prices to skyrocket.A fuel shortage will trigger an
economic collapse.
Then came the Russian invasion of Ukraine in February 2022, which
increased commodity prices and made it even harder for Sri Lankans
to afford imported fuel and food. "Suddenly we saw everything
coming to a crisis. Because without dollars we can't buy fuel like
liquefied petroleum gas (LPG), diesel, petrol and coal. The lack of
energy sovereignty has led to many of the crises we face today,”
Withanage said.
When the Sri Lankan government did not have enough dollars to pay
for the energy shipments of diesel and gasoline, the suppliers refused
to unload these shipments.
As a result, huge queues spread across the country. From taxi drivers
to car salesmen, everyone had to wait many hours for fuel. Similarly,
people had no choice but to stand for a long time and wait for LPG
cylinders to be refilled.
Fuel shortages have affected nearly every aspect of daily life,
disrupting schools and government services and limiting people's
ability to find and go to work.
Fishing boats also did not have diesel or kerosene to catch fish, and
hospitals could not use their equipment due to power cuts. Attempts
to improve energy services - International Monetary Fund. It was at
this point that people from all walks of life took to the streets and
demanded that the government provide them with adequate diesel and
petrol. In response, the country recently implemented a QR code fuel
distribution system that limits the amount of gasoline and diesel
vehicles can fill up. But Withanage doesn't expect the measure to last
long. The country has also secured financial support from
international financial institutions such as the World Bank to address
LPG needs. However, it is still unclear how the country intends to
repay this debt. In this financial crisis, debt repayment will be more
difficult. "Unfortunately, most people and politicians think that the
solution is to go to the International Monetary Fund. I would disagree
because what they will do is bail out all these private lenders. This
loan will only increase our debt,” Withanage noted.
Energy crisis may hinder climate progress. Sri Lanka's climate crisis
now threatens its climate ambitions. The country planned to increase
its use of renewable energy to 70% by 2030, up from 49.91% in 2019.
It also pledged to become carbon neutral by 2050 and reduce
emissions by 14.5% by 2030.

However, as the nation grapples with energy security, the Ceylon

Electricity Board – Sri Lanka's largest electricity company – is calling
for Chinese and Indian coal-fired power plants to be built in the
country, according to Withanage. "They are not involved in civil
society. They have changed cabinet ministers but it is the same set of
people and the same set of advice they are giving,” he said.“For
example, they appointed a climate advisor to the president, but he is a
politician; he has no idea about climate change."
Sri Lanka economic crisis of fuel: The country doesn't have enough fuel for essential
services like buses, trains and medical vehicles, and officials say it doesn't have enough
foreign currency to import more.

This lack of fuel has caused petrol and diesel prices to rise dramatically.

In late June, the government banned the sale of petrol and diesel for non-essential vehicles
for two weeks. Sales of fuel remain severely restricted.

Schools have closed, and people have been asked to work from home to help conserve
supplies.

Political issues: in Sri lanka political issues led the country to bankruptcy and first of all they
printed too much money which led to inflation and government made too unstable and led
corruption high and printed the money too much on behalf of reserves and when the country
falls to crisis no Money in reserves for payments country don’t have any money for payments
of international and national level then the government collapse and announced bankruptcy
and the president flew away the same thing is happening in Pakistan the reserves are
decreasing and don’t have enough money or payments

Poverty Increases: Poverty is expected to have increased in 2022 due to the contraction in
the economy. Poorer households are hardest hit owing to food inflation, job losses, limited
fertilizer supply and drop in remittances. While social assistance provides some relief, it is
inadequate in the face of substantial losses in real income. The goods trade deficit declined
by 18.6 percent year-on-year in the first half of 2022 as exports, particularly textiles, grew
faster than imports, which were largely financed by Indian financial support of approximately
US$3.8 billion. With declining remittances and limited tourism receipts, the current account
deficit is expected to have widened in this period. Sri Lanka’s central bank floated the Sri
Lankan Rupee (LKR) in March and returned to a managed float in May after the currency
depreciated by about 78 percent since the floating. Despite mandatory repatriation and
conversion rules, it has been challenging to bring export earnings and remittances to Sri
Lanka through formal channels due to low market confidence.