Will Pakistan be able to avert looming recession?

Islamabad [Pakistan], February 27 (ANI): As the current account deficit of Pakistan shrinks, taking the country deeper into the economic mire, the question is whether the cash-strapped country can control mass protests as the cost of living is becoming intolerable for its citizens, reported Asian Lite International.

According to the State Bank of Pakistan (SBP), the Current Account Deficit (CAD) of the country shrank 90.2 per cent to USD 0.24 billion in January from USD 2.47 billion in the same month last year.

The Pak authorities need to do things fast mode that could release the IMF bailout package lest people would come out on the roads in protest eventually leading to social tension, anarchy, disorder and uncertainty which would make things further difficult, reported Asian Lite International.

The reduction in the current account deficit has come due to an unprecedented contraction in imports, which reflects almost a standstill in industrial activities. The situation in Pakistan is getting out of hand and many people conjecture that the country has already fallen into default.

A large number of companies across sectors have either suspended operations or scaled down production levels, leading to layoffs. It is felt that the projected GDP growth of 3.5 per cent for Pakistan in the FY 2023-24 would be difficult to realise, reported Asian Lite International.

The decline in deficit was recorded as import restrictions continue to persist amid a balance of payments crisis that has brought the country on the verge of default, according to Dawn.

Ismail Iqbal Securities’ Head of Research Fahad Rauf said the shrinking current account deficit was "not an achievement but a result of low reserves," the paper reported.

The latest data shows that the country’s current account deficit during the first seven months of the current fiscal year stood at USD 3.8 billion, which equates to a decline of 67.13 per cent compared to July-January FY 2021-22.

Pakistan has a chronic balance of payments problem which has been exacerbated in the last year, with the country’s forex reserves declining to critical levels. As of February 10, the Central Bank had only USD 3.2 billion in reserves, enough to cover barely three weeks of imports.

To stem dollar outflows, the government has imposed restrictions, allowing imports of only essential food items and medicines until a lifeline bailout is agreed upon with the International Monetary Fund (IMF), which is seen as essential for the country to stave off default, reported Asian Lite International.

Pakistan heavily relies on remittances apart from exports and foreign loans for its foreign exchange reserves. But it is a matter of concern that exports have also declined, clocking in at USD 2.21 billion in January, down 4.29 per cent from the preceding month’s USD 2.31 billion.

Pakistan faces a crippling economic crisis, with decades-high inflation and critically low foreign exchange reserves depleted by continued debt repayment obligations. Meanwhile, carriers serving Pakistan’s ports are wrestling with an acute foreign exchange crisis, reported Asian Lite International.

It is due to the inability of importers to secure delivery orders for timely clearance of Cargo. This has created bottlenecks of alarming proportions in the port city of Karachi, which includes nearby Port Qasim.

Now the Pak crisis closely mirrors the political and economic unrest that neighbouring Sri Lanka had to deal with in the recent past, including Colombo Port stoppages due to dockworker protests and other chaotic conditions.

The economic collapse-like situation has arisen in Pakistan due to a combination of factors including economic mismanagement, political uncertainty, natural disasters, galloping inflation, high energy prices and immediate foreign debt payment obligations.

People are facing surging prices of essential items like wheat flour costing PKR 100/150 per kilogram, milk costing PKR 250 per litre and chicken PKR 780 per kilogramme. In contrast, energy prices are going up to all-time high levels due to the removal of subsidies as well as increases in taxes. Such occasions in the past have been fertile for a military takeover, reported Asian Lite International. (ANI)