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Current Affairs

State of Pakistan’s economy

Date: 07 December 2021 Tags: Miscellaneous

Issue

Recently, the hacked account of Pakistan embassy in Serbia mocked PM Imran Khan for the state of economy through a tweet.

 

Background

Pakistan is going through a serious economic crisis. It had to take bail-out loans from Saudi Arabia and China to keep its economy from collapsing.

 

Details

  • The galloping inflation in the country has forced the government to not pay officials from months, causing dissatisfaction among various sections.

  • The government claims that the GDP growth is projected to touch 4-year high of 5%. This also increases the risk of inflation and Balance of Payment crisis.

 

Forex crisis

  • Pakistan is facing combination of problems such as trade deficit, current account deficits, galloping inflation, currency devaluation, depleting foreign reserves etc.

  • The two immediate problems plaguing the economy is inflationary pressure and payments crisis, caused due to domestic and international reasons.

  • The situation is even worse than the one faced in 2018 when the foreign exchange reserves were at multi-year low.

 

The finances

  • The liquid foreign reserves of Pakistan stood at $22.773 billion. It has declined by $691 million due to external debt repayments.

  • The GDP growth has fallen continuously. The current account deficit of the country, which is the difference between import and export of goods and services, has increased.

  • Excessive availability of the country’s currency in international market has affected its valuation. The value of Pakistani rupee is witnessing a free-fall.

 

IMF bailout

Pakistan approached IMF for a bailout on a $6 Billion special package. In exchange, Pakistan is expected to undertake structural reforms.

 

Saudi loan

  • Saudi Arabia has agreed to grant $3 Billion loan to Pakistan, which will be deposited in the Central Bank. However, the conditions of approval have been stringent.

  • An interest rate of 4% is imposed on the loan, apart from draconian default clauses, restrictions on the legal recourse of Pakistan etc.