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Domestic Politics and Soaring Inflation

Economic revival in Pakistan is at risk due to delays in IMF loan disbursement due to political and economic uncertainty.

Pakistan’s economic recovery is at risk as the country’s foreign exchange reserves continue to decline, expected to reach approximately $3.2 billion by February 10, 2023. Currently, the country is experiencing a high level of domestic political uncertainty, which further exacerbates economic uncertainty.

The International Monetary Fund (IMF) was unable to release a critical loan tranche as a result of the combined ninth and tenth review, delaying the implementation of the front-loading requirements. Because the final payment was made in August 2022, the agreement with the IMF is what Pakistan’s economic recovery depends on.

The western world is experiencing high inflation, which has prompted central banks to raise policy rates on a global scale. The ongoing conflict between Russia and Ukraine has fueled price increases in food and energy. Higher policy rates, on the other hand, have slowed many economies and curbed speculation in global commodity markets. As a result, the prices of most commodities are falling, including those for wheat and corn, which have decreased by 30% in the last year.

Pakistan’s balance of payments (BOP) constrains the country’s growth rate, which is a worsening of the predicament. Even though succeeding governments made an effort to boost the economy above the maximum achievable growth rate of 4.5% in 2007, the growth rate fell to 3.8% in 2020. In Pakistani history, the current economic circumstance is unprecedented.

The Sensitive Price Indicator was around 29%, whereas the average inflation rate for July through January of FY23 was around 25%. Deep-seated problems brought on by structural inflation, which is unrelated to any one political administration, cannot be resolved quickly. The lowest echelon of the population is being most negatively impacted by this situation.

Political parties are using the circumstance to advance their respective narratives by pointing the finger at one another for widespread corruption, ineptitude, and poor management. To manage the crisis in the upcoming months, statesmanship will be needed as difficult issues remain unresolved.

Accordingly, Pakistan’s economic uncertainty is exacerbated by the volatile domestic political climate and the international economic environment. To achieve a sustainable economic recovery, the country’s leadership must take bold steps to address the deep-rooted structural problems.

Written by Imad Khan

Imad Khan has the skills and experience to deliver top-notch content that informs, engages, and inspires. He oftens explores nature in his free time.