Pakistan’s economy has plummeted to an extent where it’s minister, a few days ago, was forced to ask people to cut down tea consumption amid the country already battling fuel price hikes and even paper crisis. Is Pak heading towards a Lanka-like crisis?
Pakistan’s economic crisis has plummeted to a level where country’s planning minister Ahsan Iqbal a few days ago had to urge the people of the country to cut down on their tea intake.
The country is staring at bankruptcy with no immediate positive outlook visible on the cards despite ongoing negotiations between Islamabad and the International Monetary Fund (IMF) to resume the USD 6 billion rescue package from global financial body.
The IMF has reportedly set tough preconditions like hiking electricity tariffs and imposing a levy on petroleum products to revive the stalled USD 6 billion bailout package to Pakistan, days after the cash-strapped country struck a deal with the global lender on the much-needed loan facility.
The IMF has also asked Pakistan to set up an anti-corruption task force to review all the existing laws that were aimed at curbing graft in the government departments, the reports said, quoting sources.
After implementing the conditions, the IMF would present Pakistan’s request for the approval of the loan tranche and revival of the program to its executive board – a process that may consume another month, the Dawn newspaper reported.
What led to the economic crisis?
According to a report by the Indian Council of World Affairs (ICWA) the current economic crisis is primarily attributed to Pakistan’s “short-sighted policy decision” that have led to extensive spending on non-developmental and economically unviable projects.
Among other key reasons behind Pakistan’s plummeting economy are the persistent fall in the Pakistani Rupee against the US Dollar and country’s low ranking in international rating agencies, including grey listing in Financial Action Task Force (FATF), that have kepd foreign investors away.
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“Economic mismanagement and financing of futile infrastructure projects like Gwader-Kashgar Railway line project through long-term debt instruments, and relying massively on external borrowing rather than from domestic institutions added to its troubles. Roll out of the China–Pakistan Economic Corridor (CPEC) increased the debt burden opening the doors of the ever-increasing external loans. Notably, CPEC created a Chinese debt of US$ 64 billion on Pakistan which was originally valued at US$47 billion during 2014,” a February 2022 report of the ICWA said.
IMF sets tough conditions for Pakistan to revive $6 billion loan facility
The IMF has set tough preconditions like hiking electricity tariffs and imposing a levy on petroleum products to revive the stalled USD 6 billion bailout package to Pakistan, media reports said on Wednesday, days after the cash-strapped country struck a deal with the global lender on the much-needed loan facility.
The International Monetary Fund has also asked Pakistan to set up an anti-corruption task force to review all the existing laws that were aimed at curbing graft in the government departments, the reports, quoting sources as saying. After implementing the conditions, the IMF would present Pakistan’s request for the approval of the loan tranche and revival of the program to its executive board – a process that may consume another month, the Dawn newspaper reported.
The new conditions set by the IMF includes increasing electricity tariffs, the cabinet taking the decision to gradually impose Rs 50 per litre petroleum levy to collect Rs 855 billion, and ending the government’s role in determining the oil prices, The Express Tribune newspaper reported.The demands came amid the government’s decision to seek the National Assembly’s approval on Wednesday to amend the Petroleum Products (Petroleum Levy) Ordinance, 1961.
On June 22, Pakistan secured a deal with the IMF to restore the stalled USD 6 billion assistance package and unlock doors for financing from other international sources. The make or break deal was reached following the IMF staff mission and the Pakistani team, led by Finance Minister Miftah Ismail, agreeing on an understanding on the 2022-23 budget after the authorities committed to generate Rs 43,600 crore more taxes and increase petroleum levy gradually up to Rs 50 per litre, the Dawn newspaper reported.
Pak govt increases fuel prices third time in one month to meet IMF’s conditions
Adding to the country’s woes, the Shehbaz Sharif-led coalition government has recently increased fuel prices, third time in the last one month, to fulfil the IMF conditions to revive the bailout package.
This has reportedly led to shutdowns of cab services, restaurants, and home deliveries. As per figures mentioned in an Economic Times report of June 28, petrol prices in Pakistan have been raised by 56 per cent or PKR 84 (current price: PKR 233 per litre) and high-speed diesel prices have gone up by a whopping 83 per cent (current price: PKR 263 per litre) since May 26.
The stringent measures by the government are part of its desperate bid to revive the IMF programme, which many believe would bring more foreign lending and improve foreign exchange reserves that have fallen over 50 per cent in the last 10 months, according to a report in The Gulf News.
‘Cut down tea’: Pak minister’s advice to people
Amid the economic crisis, Pakistan’s Federal Minister for Planning and Development, Ahsan Iqbal, earlier this month told reporters that Pakistanis could reduce their tea consumption by “one or two cups” per day as imports are putting additional financial strain on the government.
“The tea we import is imported by taking a loan,” Iqbal said, adding businesses should also close earlier to save electricity.
His advice to people attracted memes, trolls and strong criticism.
“The problem is Pakistani elites will impose heavy taxes on the masses and snatch our cup of tea, but they will never leave their lavish life,” Hameed Khan, a 45-year-old journalist from the northern city of Peshawar, was quoted as saying by NBC News on Wednesday.
Pakistan’s paper shortage
Pakistan is also facing a major shortage of paper. The country’s paper association has said that due to the paper crisis in the country, books will not be available to students in the new academic year starting August 2022. The paper crisis has been attributed to the economic crisis, rising inflation, a heavy tax levied on imported paper, and due to monopoly of the local paper industries.
This means the education sector will be affected. Several students will not be able to get textbooks. Further, this comes at a time when Pakistan’s schools and colleges are gearing up for the new academic session. School boards in Sindh, Punjab, and Khyber Pakhtunkhwa will not be able to print new textbooks for the upcoming academic year and millions of students will not be provided textbooks, said Publishers and Booksellers Association of Pakistan.
Further, the unavailability of textbooks is expected to hit middle-class students. Educational institutions in the country could exploit the parents of the students and force them to pay huge amounts to buy books.
There are around 18,000 businesses involved in printing and packaging in Pakistan. These companies and their supply chain are reportedly management is suffering now due to the wrong policies of the government. Taxes have been imposed, and along with rising inflation, there is a paper crisis in the country. The publishers have warned that there will be an acute shortage of textbooks this year if the prices of locally manufactured paper are not fixed.
The publishers are facing shortage of imported paper. This has been heavily taxed by the government. The paper importers are suffering due to heavy taxes and the local paper mills are unable to produce enough paper to meet the demand, said Aziz Khalid, Chairman of Publishers and Booksellers Association.
Curb on wedding functions
In a bid to conserve energy, the cash-strapped Pakistan government earlier this month decided to ban wedding functions in Islamabad city after 10 pm, according to media reports.
The country, which has taken various measures to cut down consumption of electricity to reduce load shedding amid worsening power crisis, banned wedding functions after 10 pm in Islamabad with effect from June 8, Geo News reported.
The current power crisis in the country, which has also affected Pakistan’s economy, has forced the federal cabinet to restore the Saturday holiday in government offices to curb the use of energy and gradually bring down electricity load shedding to two hours a day by the end of June.
Geo News also reported that only one dish will be allowed at the wedding functions in the capital.
