WITH the entire country in the grip of political chaos and virtually no government in place in Islamabad, Pakistan is headed towards a formidable economic crisis that would be difficult for the next administration to handle. New data from the Pakistan Bureau of Statistics is not encouraging: it shows that the country’s trade deficit has widened by 70pc to an all-time high of $35.4bn in the nine-month period from July to March, causing the State Bank’s debt-based foreign exchange reserves to deplete to less than two months’ import cover. This is in spite of the nearly 25pc growth in exports, the impact of which is wiped out by a spike of around 49pc in imports. The latter is due to surging global energy and food prices — a consequence of the Russia-Ukraine conflict and Covid-related supply disruptions. The latest trade data underscores that the current account deficit may have widened to $13bn in March, from $12bn recorded in the preceding month. Trade and external account numbers show that the measures taken by the PTI government and central bank in order to bridge the twin trade and current account deficits in the last five to six months have mostly failed. These measures have included a significant hike in interest rates, the introduction of a hefty cash margin requirement for importing goods, and the curtailment of consumer financing.
It is feared that the external account may become more vulnerable as international creditors such as the IMF are suspending their funding because of the domestic political uncertainty and, arguably, the country’s deteriorating ties with Western capitals, especially Washington. The prime minister’s latest narrative that the US is behind a conspiracy to topple him with the help of the opposition is seen as a major reason behind the IMF’s decision to stop its funding programme. In fact, we may see fragile State Bank reserves of $11bn bleed further because of scheduled foreign debt and other payments, pushing the country to the brink of a possible default if immediate international ‘help’ from ‘friendly’ countries does not come soon. The rapidly weakening home currency is just a sign of the shape of things to come. Expecting the economy to recover, the external account to stabilise and foreign creditors to resume their funding in the present political conditions is foolish. In retrospect, the economic hardships suffered by people in the last three and half years in the hope of a better future have been for nothing.
Published in Dawn, April 7th, 2022