Pakistan is suffering from a suffocating economic crisis with the decline of its local currency against the dollar, the imposition of more taxes, the increase in inflation rates and the shortage of raw materials needed for industry, not to mention a crisis in the balance of payments, at a time when the country is looking for a solution to pay off its foreign debts.
Pakistan is struggling to obtain a package from the International Monetary Fund worth $1.1 billion, which had been stalled since last December due to failure to meet the conditions, and it is part of an agreement concluded in 2019 to obtain a loan of $6.5 billion.
Negotiations between Islamabad and the IMF are still continuing despite their failure two weeks ago, which prompted the Pakistani parliament two days ago to approve a bill to impose taxes aimed at collecting 170 billion rupees (649 million and 63 thousand dollars) in the next four and a half months to meet the terms of the fund. This was after disputes and deliberations that lasted for days.
multiple problems
Pakistan's foreign exchange stockpile reached $2.9 billion, which is sufficient to cover foreign imports for a period not exceeding 20 days, according to economists.
In this context, economics journalist Shahbaz Rana says that for the first time in its history, Islamabad is facing a real risk of default.
Rana added, in an interview with Al-Jazeera Net, "The lack of financial support from the International Monetary Fund or countries in the region will increase the risk of default."
On the economic problems facing Pakistan, Professor of Economics at the National University of Modern Languages (NUML), Dr. Shafiullah Qureshi, said in an interview with Al-Jazeera Net that Pakistan has 4 obstacles:
The current account deficit problem has been going on for decades.
The current investment-to-GDP ratio is 14%.
In contrast, Cambodia, Vietnam, Bangladesh and Turkey have investment-to-GDP ratios between 25% and 30%.
Instead of using the loan for constructive investment, Pakistan is borrowing money to pay off its existing debts.
Determine how to invest instead of incurring more debt, as there is no unified investment mechanism yet.
While the economist and head of the Asian Institute for Research on Civilization and Development, Shakil Ramai, says that the most important problem at the present time is the decline in foreign exchange in conjunction with the need to pay off foreign debts, and at the same time there is very high inflation in the country.
And Ramai continues, in an interview with Al-Jazeera Net, that the third reason is the lack of a high growth rate, and this is due to high energy prices, high interest rates, and low foreign exchange stocks.
Pakistan faces, for the first time in its history, a real danger of defaulting on its debts (Shutterstock)
Major factories are closing down
In light of this suffocating crisis, a number of factories in Pakistan were affected, prompting some of them to stop their operations or close indefinitely, according to Bloomberg.
The local units of "Suzuki", "Honda" and the Japanese "Toyota" were closed for several weeks, due to the continued shortage of spare parts, which affected car sales, which fell by 65% to the lowest level. level for nearly 3 years.
Ghandhara Tire & Rubber, which makes tyres, closed its factory from February 13, saying it was facing "enormous hurdles to importing raw materials and getting shipments cleared from commercial banks".
According to the US agency, other companies that manufacture fertilizers, steel and textiles have closed their factories indefinitely or suspended operations intermittently as they struggle with a shortage of inventory or liquidity, or even a decline in demand.
Regarding the reasons behind the closures, Rana says that one of the reasons lies in the government imposing restrictions on imports due to the severe shortage of foreign exchange, and this has affected the supply chain of companies that rely heavily on imported raw materials.
Rana adds that the restrictions imposed on imports also led to negative industrial production during the first half of this fiscal year, and all these factors will contribute to the high rates of inflation, unemployment and poverty in Pakistan.
Ramai also stresses that the lack of foreign currency affects the availability of raw materials, and the other problem is the high operating costs of factories such as electricity, oil and gas prices, as a result of the government's attempts to respond to the conditions of the International Monetary Fund, and the third reason is market speculation and uncertainty.
For his part, Dr. Shafiullah Qureshi says that Pakistan's inability to pay the value of imports leaves thousands of containers of supplies in its ports, stops operations, and threatens jobs, and according to Qureshi, due to the decline in exports and the government's inability to solve the economic crisis, about 7 million workers were laid off in Textile and related industries.
Closing a large number of factories in Pakistan will lead to high unemployment rates (Anatolia)
Resorting to natural charcoal
As a result of the foreign exchange crisis, Pakistan is turning to coal power generation, as Pakistani Energy Minister Khurram Dastgir Khan said earlier that his country intends to quadruple its domestic capacity using coal, to reduce power generation costs, and will not build new gas-fired plants in the coming years.
The energy sector in Pakistan faces many crises.
The first is the lack of natural gas required for electricity generation, as gas accounts for more than a third of the country's electricity production, and its shortage plunged large areas into darkness last year.
In this context, Dr. Shafiullah says, Pakistan was unable to buy gas due to a jump in global prices in the wake of the Russian-Ukrainian war and the severe economic crisis.
This was confirmed by Rana, who said that the severe economic crisis had undermined the country's ability to import enough gas and coal for power generation.
While Ramai says, one of the problems facing the energy sector is the lack of investment in this sector, which means less production compared to consumption, and he continues that one of the solutions lies in increasing investment in the energy sector and developing stations to cover demand.
Ramai says that the government is currently working on several options, one of which is renewable energy, as it is building some dams to generate electricity, and is seeking to use solar panels as well.
Ramai says that coal is the least used in Pakistan to generate electricity, because Pakistan focuses on clean and renewable energy.
Rana goes back to saying that any plan to use local coal in existing power plants may not actually increase energy production due to technological and mechanical difficulties, and believes that this will require more time and money to convert power plants that operate on imported fuel to local coal, which may not be possible either.