Highlights

  • IMF assistance had been suspended due to controversial fuel subsidies
  • Foreign currency reserves with the central bank have fallen to about $10 bn

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Pakistan faces bankruptcy, funds to cover only 2 months of imports

Pakistan and IMF have been negotiating over $3 billion from a loan program

Pakistan in the headlines but the news grim as the economy faces a complete collapse. The govt is hoping that the IMF will lift the suspension and provide the much needed financial assistance to keep the country afloat.

The foreign exchange reserves with the govt has dwindled to $10 billion, just enough to cover imports up to 2 months and if you take out the gold and look at just the liquid reserves it is barely enough to cover 1 month of imports. The govt is overshooting expenditure and running out of money. The fiscal deficit could hit $30 bn, or about 8.8% of GDP by the end of this quarter.

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High subsidies, not passing on petrol price hikes, low tax collection from the rich and political turmoil has taken a severe toll on the finances. Add to that mounting debt and inability to get funds as international debt market remain virtually shut. Adding to the repayment pressure, Pakistan also owes China $4.3 bn in short-term loans in addition to the expensive loans to finance the power plants built under the China-Pakistan Economic Corridor programme.

The new government hopes to stop the bleeding with an enhanced IMF package and more short-term loans from allies China and Saudi Arabia. Meanwhile it rolls out big rate hikes to battle high inflation which now is clocking above 13% and likely to escalate to 30% as per some experts.

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