Despite a new government taking over in Islamabad, there is no end to Pakistan's economic woes.
Bloomberg reported on Thursday that the foreign exchange reserves of the State Bank of Pakistan had “decreased by $366 million in the week ended May 27 to stand at $9.72 billion”.
This marks a drop of nearly 50 per cent from last August and is “enough to pay for less than two months of imports”, Bloomberg reported.
The publication warned the foreign exchange situation could spill over “into a fullblown economic crisis unless policy makers secure a loan from the International Monetary Fund”.
In recent weeks, Pakistan has been making efforts to meet the IMF's conditions for securing a loan of $3 billion. This includes raising fuel and electricity prices.
On Thursday, Pakistan Finance Minister Miftah Ismail declared the prices of fuel products—such as petrol, diesel and light diesel—had been raised by Pakistani Rs 30. This is the second such increase in weeks. The latest increase takes the price of petrol to Pakistani Rs 209.86 and diesel to Pakistani Rs 204.15. One Indian rupee is equal to 2.54 Pakistani rupees at current rates. Ismail also announced power prices would be hiked by Rs 8 per unit from July 1.
Ismail acknowledged the price hikes would worsen inflation, but defended his actions, blaming the previous Imran Khan government. “I have to reach an agreement with the IMF. [Former finance minister] Shaukat Tarin and Imran Khan had tied our hands by signing agreements with the IMF and then violated it... We cannot deviate much from earlier agreements that required Rs 30 petroleum levy and 17pc tax. I would not impose taxes in June, but subsidy would be withdrawn,” Ismail was quoted as saying by Dawn.
Moody's downgrade
Global rating agency Moody's Investor Service on Thursday downgraded Pakistan's outlook from stable to negative, citing “heightened external vulnerability” and uncertainty around securing external financing to meet the country's needs. Moody's said that while it was hopeful Pakistan would complete its IMF review and attract further external financing, if Pakistan failed to do so, then it could face a balance of payments crisis.
“Moody's assesses that Pakistan's external vulnerability risk has been amplified by rising inflation, which puts downward pressure on the current account, the currency and—already thin—foreign exchange reserves, especially in the context of heightened political and social risk,” Moody’s said in a statement.
It added that the country's “weak institutions and governance strength” had added uncertainty around the future direction of macroeconomic policy.
Trade deficit
The Bloomberg report warned the trade deficit was another worry for Islamabad. “The shortage of dollars could worsen as the nation forecasts its trade deficit will widen to a record $45 billion in the year ending June,” Bloomberg reported.
