Introduction
Pakistan, a nation once brimming with promise and potential, has found itself entangled in a web of economic turmoil that has shaken its foundations. The country's economic crisis, which began unraveling in 2022, has spiraled into a multifaceted challenge, encompassing political instability, financial mismanagement, and global economic shocks.
Pak Minister’s Comments
On Monday, May 1, Maulana Fazlur Rehman, a prominent right-wing Islamic leader in Pakistan, surprised many by expressing his support for the Pakistan Tehreek-e-Insaf (PTI) party, despite his previous opposition to it. Rehman, who leads his faction of the Jamiat Ulema-e-Islam Fazl (JUI-F), delivered a strong speech in the National Assembly, criticizing what he sees as the manipulation of the political system by powerful forces. Rehman advocated for the opposition party's right to organize rallies and possibly take on governmental responsibilities. He urged the ruling coalition, which includes the Pakistan Muslim League (Nawaz) and the Pakistan Peoples Party, to recognize the potential majority of PTI in parliament and allow it to form a government.
Maulana Fazlur Rehman is a key Opposition leader and religious figure in Pakistan. (Photo: Maulana Fazl-ur-Rehman/X) Image Link
Expressing his dissatisfaction with the influence of the establishment and bureaucracy in elections and governance, Rehman alleged irregularities in the February 8 elections and lamented the lack of fairness. He criticized the tendency to blame politicians while decision-making actually lies elsewhere. Additionally, Rehman criticized the failure to implement recommendations from the Council of Islamic Ideology (CII), emphasizing the importance of upholding Islamic principles. The CII is a constitutional body tasked with Islamizing laws.
Rehman also pointed out Pakistan's reliance on international financial assistance, stating that the nation was seeking support from the International Monetary Fund to avoid bankruptcy. While the JUI-F had previously been adversaries with the PTI and had led efforts to remove Imran Khan from power, they later joined the coalition government after Khan's ousting. However, Rehman distanced himself from the PML-N and PPP after alleging electoral manipulation aimed at excluding his party from power.
Many speculate that Rehman's support for the PTI is a move to pressure both the establishment and government to secure a more favorable position in political negotiations.
PTI leader Asad Qaiser had demanded the party's right to organize a rally.
"Asad Qaiser's demand is justified, and PTI has every right to hold a rally," Rehman stated in his speech.
"Give up this power. Come and sit here [on the opposition benches], and if PTI truly has the majority, then let them form the government," he urged.
"The establishment and bureaucracy played no role in the creation of this country," he emphasized. "What kind of election is this where the losers are not satisfied and the winners are unhappy?" he questioned.
Drawing comparisons with neighboring India, he said,
"Just compare India and us... both countries gained independence on the same day. But today they (India) are aspiring to become a superpower while we are seeking to avoid bankruptcy." "We founded this country in the name of Islam, but today we have become a secular state. Since 1973, not a single recommendation of the CII has been implemented. How can we claim to be an Islamic country?" he added.
The Descent into Crisis
The roots of Pakistan's economic crisis can be traced back to the political upheaval of 2022. The ousting of former Prime Minister Imran Khan's government set the stage for a tumultuous period, characterized by policy uncertainties and a lack of cohesive economic strategy. Compounded by the global spike in fuel prices triggered by the Russian invasion of Ukraine, Pakistan found itself grappling with soaring inflation and a rapidly depleting foreign exchange reserve.
The crisis was further exacerbated by years of excessive reliance on external borrowing, leading to a devaluation of the Pakistani rupee and an escalation in the cost of imports. By June 2022, inflation had reached unprecedented levels, particularly impacting food prices, with the Consumer Price Index (CPI) surging to 21.3%, the highest rate since December 2008 when it stood at 23.3%.
Seeking Salvation: The IMF and External Assistance
Faced with a looming balance of payments crisis, Pakistan turned to the International Monetary Fund (IMF) and other international lenders for assistance. In May 2022, the government implemented a ban on the importation of unnecessary and luxury goods, aiming to conserve valuable foreign exchange reserves and implement austerity measures.
However, securing IMF support came at a steep price. The IMF required Islamabad to increase electricity tariffs, enhance tax collection, and enact substantial budget cuts. By June 2022, Finance Minister Miftah Ismail announced a $2.3 billion loan from a Chinese consortium of banks to bolster the central bank's reserves.
Despite these efforts, Pakistan's foreign exchange reserves plummeted to a nearly four-year low of $6.715 billion by December 2022, barely sufficient for five weeks of merchandise imports. The persistent depreciation of the Pakistani rupee further exacerbated the crisis, with the exchange rate plummeting from 183.48 to $1 at the end of March 2022 to 224.40 by December 9, 2022.
The Spiraling Inflation and Dire Consequences
As the crisis deepened, inflation rates soared to unprecedented levels. In January 2023, the government removed the artificial cap on its currency, leading to a rapid 20% depreciation of the rupee against the dollar within days. Fuel prices were hiked by 16%, and the central bank raised interest rates by 100 basis points in an attempt to combat record-high inflation, projected to reach 26%. By February 2023, a Moody's economist forecasted that Pakistan's inflation could average 33% in the first half of the year. Fitch downgraded Pakistan's sovereign credit rating from CCC+ to CCC-, warning of a potential default. The situation became even more dire in March 2023, with food inflation surging to 47.1% in urban areas and 50.2% in rural regions. Moody's further downgraded Pakistan's rating to Caa3, while the overall CPI skyrocketed to 35.4%, the highest since July 1965.
The Impact on Industry and Infrastructure
The economic crisis has had far-reaching consequences, crippling various industries and testing the resilience of Pakistan's infrastructure. In October 2022, the All Pakistan Textile Mills Association (APTMA) declared the closure of 1,600 garment mills nationwide due to the removal of power subsidies, resulting in the loss of employment for five million individuals. By December 2022, APTMA reported that mills were operating at less than 50% capacity, indicating a potential further decline in textile exports from 2023 onward.
Prominent companies listed on the Pakistan Stock Exchange, including car manufacturers like Pak Suzuki Motors, Toyota Indus, and Honda Atlas Cars, ceased assembly operations due to difficulties in obtaining letters of credit amidst government-imposed foreign exchange restrictions. Other notable companies, such as Millat Tractors, Ghandhara Tyre & Rubber Company, Nishat Chunian, and Fauji Fertilizer Bin Qasim, also closed factories due to sluggish demand and adverse economic conditions. The shortage of foreign exchange reserves and the depreciation of the Pakistani rupee hindered the import of crude oil, leading to the temporary closure of Pakistan's largest petroleum refinery, Cnergyico, in February 2023. Pharmaceutical companies ceased operations due to the unsustainable cost of production, resulting in a scarcity of medicines and equipment nationwide, prompting hospitals to postpone surgeries and treatments.
By April 2023, nearly all of the country's 30 mobile phone assembly units, including three operated by foreign brands, ceased operations, affecting 20,000 employees. Additionally, in June 2023, Shell plc announced its decision to exit the Pakistani market by divesting its entire 77.42% stake in Shell Pakistan.
The Path Forward: Economic Revival and Reform
In an effort to address the crisis, the Pakistani government introduced an "Economic Revival Plan" in June 2023, focusing on investments in key sectors such as agriculture, mining, Information Technology, defense, and energy. Prime Minister Shehbaz Sharif commended China for its assistance during the economic turmoil, highlighting the importance of international cooperation in overcoming the challenges.
However, the road to recovery remains arduous, with the United Nations report released in January 2024 indicating that Pakistan's economy is poised to encounter global challenges, with only moderate GDP growth anticipated. As of February 2024, Pakistan faced the daunting task of managing approximately $30 billion in annual external debt obligations, amidst fluctuating foreign currency reserves.
Conclusion
Pakistan's economic crisis has been a perfect storm, fueled by a combination of political instability, global economic shocks, and longstanding structural weaknesses. The nation's struggle to regain its economic footing has had far-reaching consequences, impacting industries, employment, and the overall well-being of its people. It is high time that the establishment starts making economic prosperity of their people their national goal and not secession of Kashmir from India.
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