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Pakistan: A failed Economy?

South Asian country Pakistan, is currently facing its worst financial turmoil since its independence in 1947. Long queues of vehicles at fast emptying filling stations, hours long blackouts, acute food shortages have become common. The country is facing an inflation rate of 28% and with a breakdown in supply chain can result in hyperinflation. On 27th January Pakistan's currency depreciated to its lowest against the US Dollars at 262.6 Pakistani rupees.


Earlier this month, Pakistani government had announced some absurd guidelines to tackle the power blackouts. Some of the points in the order read:

- Markets to shut by 8:30 pm.

- Wedding halls, restaurants to shut by 10pm.

- No manufacturing of incandescent bulbs from February 1st.


According to the government, these measures will help Pakistan save around 267 million or 62 billion Pakistani Rupees.


So, how bad is it?


Currently State Bank of Pakistan has just US$ 4.4 billion in forex reserves, barely enough for three weeks of imports. Meanwhile there is a US$ 13 billion loan from Saudi Arabia and China which has yet to materialise. Pakistan needs to raise more than $26 billion to repay foreign debts and reduce its massive current account deficit. Nearly 30% of Pakistan’s foreign debt is owed to China. In the next three months, the country has to pay $8.3 billion to external debtors. The IMF is the only forum which can save the sinking nation. The release of $1.1 billion that was originally scheduled to be disbursed by the IMF in November of last year has yet to be approved, resulting in Pakistan having insufficient foreign exchange reserves. In 2019, Pakistan received a bailout package of $6 billion, which was subsequently increased by an additional $1 billion earlier this year.


Reasons?


2022 floods:

Pakistan suffered from a devastating flood which hit the nation during months of June to September, 2022. The flood affected affected nearly 33 million people, is believed to have led to damages worth over $30 billion. But the economy was struggling even before the floods. Pakistan’s economic crisis has numerous causes.


Political instability:

Weak governance and political instability have been significant factors, weakening investor confidence in the country and contributing to corruption and pork-barrel politics that undermine the country’s fiscal position.


Overdependence upon imports:


Pakistan is also highly import-dependent, particularly with regard to energy, which renders it acutely vulnerable to hikes in global oil and gas prices. These floods increased Pakistan’s dependence on imported goods.


Meanwhile, Taliban has been nothing more than a sore leg to Pakistan. The return of Taliban in neighbouring Afghanistan- What was once celebrated by the Pakistani army and its intelligence service- ISI, is now hurting their own people the most. After the Taliban returned to power in August, 2021; the terror attacks in Pakistan have increased by approximately 51%. The Tehrik-e Taliban Pakistan (TTP) has claimed multiple attacks in January, 2023 itself.


The militant group claimed responsibility for the killing of an official and officer of Pakistan's powerful Inter-Services Intelligence (ISI) spy agency. Police said the two men were shot dead on January 3 outside a hotel in Punjab, Pakistan's most populous and prosperous province.


2023 Peshawar Mosque attack- A Taliban suicide bomber blew himself up in a mosque packed with worshippers during afternoon prayers on Monday in the high-security zone in Pakistan's north-western Peshawar city, killing at least 100 people and wounding more than 150 others, mostly policemen, security and health officials said. The blast occurred inside the mosque in the Police Lines area.




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