Pakistan Crisis: Here’s four reasons why cash-strapped economy is under global scrutiny

Pakistan's economic crisis deepens as the International Monetary Fund (IMF), a global financial agency, eyes implementing policy reforms in the South-Asian nation. This is the latest development in Pakistan's economic crisis row as the nation tries to borrow its way out of its debt situation.

IMF's row with Pakistan to improve its economic situation has been spread over several events. The nation aims to reduce expenditures, increase the tax-to-GDP ratio, tax non-traditional sectors like agriculture and real estate, limit subsidies, and transfer some fiscal responsibilities to provinces.

The news agency PTI reported on Saturday, October 12, quoting a local news portal, The News International. It said that the International Monetary Fund (IMF) has focused on the urgent need for policy reforms in the country, highlighting that it has not kept pace with its regional peers in terms of standard of living.

In recent decades, Pakistan has lagged in key metrics like per capita income, competitiveness, and export performance, as the country's gross domestic product (GDP) has grown only 1.9 per cent between the years 2000 and 2022, as per the report.

Pakistan cut jobs

To secure a $7 billion IMF loan, Pakistan cut nearly 1.5 lakh government jobs, closed six ministries, and merged two others as a part of its deal with the global financer.

The agency reported that Pakistan announced this to reduce administrative expenditures. The IMF agreed to the assistance package on September 26, 2024, and released $1 billion as the first segment, according to the report.

Pakistan has been struggling to fix its economy for many years, and it was even close to default in 2023, but a timely loan of $3 billion by the IMF saved the day for the nation, as per the report.

While taking IMF's assistance, Pakistan hoped that it would be the last loan, but many doubted that the country had already secured about two dozen loans from the Fund but failed to address the economy permanently, as per the report.

Fuel price hike

Amid the escalating economic debt situation, Pakistan is also preparing for another fuel price hike. The rising petrol and diesel prices are fueled by escalating global crude oil rates, reported The Tribune.

Pakistan’s dependence on imported oil, clubbed with rampant smuggling and illegal trade, has left the nation vulnerable, with limited control over its energy security, said the report.

Over the last two weeks, international petrol prices have risen nearly $2.80 per barrel, while high-speed diesel (HSD) prices have spiked close to $7 per barrel, according to the report.

The government is expected to increase petrol price by ₹5 per litre and a diesel price hike of Rs13 per litre on October 15, as per the report.

The China obstruction

The International Monetary Fund (IMF) also asked Pakistan to stop setting up industrial zones that offer incentives for investment. This move is likely to undermine Islamabad’s efforts to attract more Chinese industries into the country, reported the agency Bloomberg on Friday.

According to the IMF's notes, the country is barred from giving tax breaks and subsidies to any new or existing special economic zones, as per the agency report.

The agency report also stated that this move from the IMF came just after the $7 billion loan sanctioned to the cash-strapped nation, as Prime Minister Shehbaz Sharif tries to convince Chinese companies to shift more industries into Pakistan, thereby giving fresh momentum to projects. The country had planned to build at least nine special economic zones under the China-Pakistan Economic Corridor project, which is at various stages of development, reported the agency.

IMF's view of Pakistan

IMF after reviewing a decade of its sponsored programs in Pakistan, acknowledged the persistent underlying challenges and recommended a greater sense of ownership as a crucial takeaway from its findings, according to the PTI report.

IMF's efforts to revive Pakistan involve changes to the country's fundamentals and policies. The upcoming measures will be critical in shaping Pakistan's economic future, and their success will largely depend on the government's commitment to enforcing the reforms.