Pakistan’s economy seems to be getting from bad to worse since the new government took over. Prime Minister Shehbaz Sharif has delayed bringing in economic reforms which is worsening the situation.
The stock market collapsed nearly 3.3 percent on Monday, the steepest decline in nearly five months and the rupee continues its slide as investors fret over the economic condition. The delay in reviving the IMF loan programme, lack of clarity on the economic plan, and political situation has affected the economy.
The government is yet to implement economic policies such as rolling back energy subsidies, which were introduced by Imran Khan’s government in his last months in power as he faced mounting pressure due to rising inflation. The reluctance in withdrawing the subsidies as agreed with the IMF is worsening the condition.
Pakistan is in dire need of external financial assistance due to the widening current account deficit and foreign reserves falling below $10.5 billion, equivalent to less than two months of imports. PM Shehbaz Sharif visited Saudi Arabia and UAE last week but was unable to secure any assurances of funding. The Saudis had agreed to augment the $3.2 billion funds and extend the credit facility.
When the new government took over last month, the stock market surged and raised investor hopes. However, the lack of any coherent economic policy has seen the economy in a freefall ever since. It is unlikely that Pakistan would default on its external liabilities. Neither are we expected to face a situation like Sri Lanka which has seen violent clashes after the worst economic crisis.
The economy will survive the regime change and remain on a sustainable growth path and reform agenda. The government needs to expedite foreign inflows from multilateral lenders or friendly countries to sustain the economy. The government will have to impose an ‘economic emergency’ to stabilize key indicators.
Shehbaz Sharif is facing an uphill task to maintain growth despite the rising oil and commodity process. The finance team is expected to hold negotiations with the IMF team in Doha next week to release the next tranche. It is essential the government should expedite economic reforms to improve the economy and bring stability.
