Pakistan's Economic Crisis, $36 Billion Required, Hot Mic, Nidhi Razdan, Pakistan, Prime Minister, Shehbaz Sharif, IMF bailout terms
Pakistan's Economic Crisis: $36 Billion Required - Hot Mic with Nidhi Razdan
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Pakistan is lurching from crisis to crisis. There was a protracted political crisis in which Imran Khan refused to leave the prime minister’s chair until he was forced to do so and Shehbaz Sharif was sworn in as PM. However, the country is now facing a major economic crisis. Pakistan faces $6.4 billion in debt due over next three years as Prime Minister Shehbaz Sharif’s new government attempts to meet IMF bailout terms.

In fact, Pakistan has requested a bailout from the IMF 22 times in the past. However, genuine reform efforts have been lacking, which is why they keep returning. Pakistan’s currency reserves are running low. They have been cut in half in less than a year. And the country requires $36 billion in foreign funding in the coming fiscal year, which begins in June.

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According to Bloomberg data compiled from 13 countries, Pakistan is the worst performer in Asia, with its rupee falling by nearly 8% in the last month. To keep its economy afloat and avoid a default, the country is desperately negotiating a bailout program with the IMF and other countries. However, obtaining an IMF loan comes with stringent conditions that Pakistan has previously struggled to meet.

This includes reducing the federal budget deficit, improving banking and tax legislation, strengthening the social safety net for low-income households, phasing out electricity subsidies, and reducing the federal bank’s foreign exchange market intervention. Pakistan’s current economic crisis is primarily the result of excessive spending on non-developmental and unprofitable projects.

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Experts, for example, have cited failed infrastructure projects such as the Gwadar-Kashgar Railway Line Project, which relied heavily on external borrowing rather than domestic institutions. All of this has exacerbated Pakistan’s problems. The construction of the China-Pakistan Economic Corridor, or CPEC, increased Pakistan’s debt burden, opening the door to ever-increasing external loans. Notably, CPEC resulted in a $64 billion Chinese debt to Pakistan, which was originally valued at $47 billion in 2014.

The persistent depreciation of the Pakistani rupee against the US dollar has added to the country’s mounting external debt. A bailout from the IMF has become critical, as countries that have historically been generous lenders to Islamabad are now proceeding with caution. The problem is that countries that were willing to bail out Pakistan in the past are no longer willing to do so unless Pakistan makes significant progress with the IMF. When Pakistan faced a similar economic crisis in 2018, it was able to secure support from China, Saudi Arabia, and the United Arab Emirates before turning to the International Monetary Fund.

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