Pakistan Economic Crisis: Pakistan’s economic crisis is increasing day by day amid political infighting and uncertainty in negotiations with the International Monetary Fund (IMF). A five-year Credit-Default-Swap (CDS) program measures the return on lending to the country. CDS is a type of insurance contract that protects the investor.
Credit-default swaps rose to 75.5 percent from 56.2 percent on Wednesday, Dawn reported citing data disseminated by research firm Arif Habib Ltd. The increase in CDS percentage reflects an ‘extreme situation’ in the country. Hence it is very difficult for the government to raise foreign exchange through bonds or commercial loans from the markets.
Between $32 billion and $34 billion is required to service Pakistan’s external debt this fiscal year. According to financial experts, Pakistan still needs USD 23 billion for the rest of the fiscal year. As reported in the Dawn newspaper, Pakistan remains in the IMF program. It allows for loans from World Bank, Asian Development Bank and Asian Infrastructure Bank.
Pakistan has informed the IMF that it will reduce the fiscal deficit to ₹1500 billion in the current fiscal year. But the situation is worsening as the deficit widens in the first quarter. Official sources in the United States said last week that talks between Pakistan and the International Monetary Fund have been postponed.
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According to a Dawn report, talks between the IMF and the government of Pakistan, which were scheduled to begin in early November, have been postponed to the third week of November. Talks will resume after Pakistan implements its pledge to restore sales tax on petroleum products and take other necessary steps under a loan agreement renewed earlier this year.
Official sources revealed that talks between the IMF and Pakistan have been put on hold following the World Bank’s report on Pakistan’s flood damage released in October.
Don’t trust the international market
Despite repeated assurances by Pakistan’s Finance Minister Ishaq Dar that the loans would be repaid, the international market was unwilling to believe these assurances as the country’s economy sought to avoid debt by borrowing from markets, donors, commercial banks and allies.
State of Govt
The finance ministry has said new taxes are needed to fund liquidity and avoid widening of the fiscal deficit. The government needs at least ₹800 billion, which could be achieved through new taxes, reports said. However, imposing new taxes amid economic and political struggles will be more challenging for the government.
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