Pakistan began 2022 with concerns about default, narrowly avoided default in the middle of the year with help from the International Monetary Fund (IMF), and averted default again in the third quarter with continued assistance from the IMF. However, there is now renewed speculation about the possibility of imminent default. The IMF’s Extended Fund Facility (EFF) was on hold at the end of 2021, but is now in progress, though the markets are uncertain about this. There have been other changes since the end of 2021, including a depreciation of the rupee from 176 to 226 per dollar and increases in the price of gasoline and diesel from 141 to 214 and 131 to 227 per liter, respectively. Despite these challenges, Pakistan’s finance minister asserts that the situation is difficult but not desperate.The economy in 2022 was expected to continue its strong growth due to advances in technology and increased international trade but fail.
Economy in 2022 IMF’s Extended Fund Facility (EFF) program
Over the past year, the most notable achievement has been the revival of the IMF’s Extended Fund Facility (EFF) program, which has given Pakistan time to address its economic issues. However, these months seem to be coming to an end, and the country’s economy remains in poor shape. The tax-to-GDP ratio is still low, and there has been no effort to find new sources of revenue to fund flood reconstruction efforts. The finance minister claims that the rupee is undervalued, but his tough stance on this issue has caused a significant portion of remittances and private holdings to move into the informal market. The current financial policies seem focused on electoral success rather than stability, leading to speculation about a technocratic government. However, Pakistan has had experience with technocratic solutions in the past and knows that they do not solve the country’s economic problems.
It’s important for Prime Minister Shehbaz Sharif to provide strong leadership and not just focus on popular political tactics. For example, the government has criticised former Prime Minister Imran Khan for freezing petroleum prices, but has continued this policy for several more months to appear pro-people. It would be better for the country if politicians stopped this behaviour and made decisions based on what is best for the country, rather than just trying to appeal to the public. Strong political stewardship is needed in order to address the country’s economic challenges.
Economic Challenges and Uncertainty in Pakistan: Stock Market Decline and Increase in Gold Value
Investors are cautious and are taking steps to protect their investments, as indicated by the decline in stock values and the appreciation of gold. The KSE-100 Index has fallen from 44,596 to 39,802 points since the end of 2021, while gold has increased in value from 108,196 to 156,636 per 10 grams or from 126,200 to 182,700 per tola. Pakistan’s finance minister, Ishaq Dar, has not shared his plan for improving the economy and only says that inflows will eventually be sufficient to cover outflows, even though the central bank’s foreign exchange reserves are low. Dar has faced numerous challenges, including a climate disaster, the Ukraine war, the threat of a global recession, and the impact of the Covid-19 pandemic on China’s economy. Political turmoil and the tactics of former Prime Minister Imran Khan have also contributed to economic problems in the country, and his supporters are responsible for the current talk of default.
