Short Note : Economic Crisis in Pakistan

The International Monetary Fund (IMF) has stated that the nation of Pakistan is facing significant economic challenge. These challenges are due to the lack-lustre growth exhibited by the markets of Pakistan.

What is happening in Pakistan?

• As per the IMF figures, the real GDP growth in Pakistan over the past few years has been only about 3 percent annually and maybe just over 3.25 percent.
• Pakistan s trade position has deteriorated substantially as export growth turned negative while imports grew.
• This created a problem with the country s financial account deteriorated reflecting weak financial inflows and debt repayments.
• This led to a swift depletion of foreign exchange reserves.
• Even after the start of the crisis, the various structural weaknesses have remained largely unaddressed, including a chronically weak tax administration, a difficult business environment, inefficient and loss-making state-owned enterprises, amid a large informal economy.

What happens now?

• The country of Pakistan which barely has a currency reserve of less than USD 8 billion had approached IMF in August 2018 for a bailout package.
• IMF had approved a loan of USD 6 billion. This Fund-supported program is then expected to attract broader support from various multilateral and bilateral creditors who will then raise an amount in excess of $38 billion. This money is crucial for Pakistan to meet its large financing in the future.
• Pakistan has also received billions in financial aid packages from other friendly countries like China, Saudi Arabia and the UAE.

What needs to be done by Pakistan?

Pakistan needs to adopt a decisive fiscal consolidation which is the only way to reduce a large amount of public debt incurred by the state.
This will require a multi-year revenue mobilization plan which will broaden the tax base and improve the tax revenue in a well-balanced and equitable manner.