Pakistani economic crisis (2022–present)
Excessive external borrowings by the country over the years raised the spectre of default, causing the currency to fall and making imports more expensive in relative terms.Economically, the country is grappling with severe inflation, a declining currency, and critically low foreign reserves, posing significant concerns for its financial stability.[21] During the government of Pakistan Tehreek-e-Insaf (PTI) increasing double-digit inflation led to growing political issues and deteriorating economic conditions.[22][23] During the PTI period, Pakistan's total debt and liabilities increased by 80% while during three quarters of Fiscal Year 2021-22 the trade deficit rose 70% to $35.4 billion.[28] On 9 April 2022, Imran Khan was ousted in a vote of no-confidence,[29] as the National Assembly of Pakistan elected opposition leader Shehbaz Sharif as Prime Minister two days later."[31] Political instability worsened the country's economic condition; with rapid outflows from foreign reserves and currency devaluations soon after the arrival of the Shahbaz Sharif government, with the Rupee hitting an all-time low in May.Information Minister Maryam Aurangzeb told a news conference held on 19 May 2022, that Pakistan was committed to "controlling rising inflation, stabilizing foreign exchange reserves, strengthening the economy and reducing the country's dependence on imports"."[37] In late May 2022, the government lifted the cap on fuel prices - a condition for advancing the long-stalled bailout deal with the International Monetary Fund (IMF).[38] Federal Minister for Planning and Development Ahsan Iqbal told reporters on 14 May 2022, that Pakistanis could reduce their tea consumption to "one or two cups" a day as imports were putting additional financial pressure on the government.And the Pakistani central bank raised its interest rate by 100 basis points to battle the country's highest inflation in decades, expected to be as high as 26% in January.Finance Minister Ishaq Dar said that China approved a rollover of a $1.3 billion loan for cash-strapped Pakistan, which would help shore up its depleting foreign exchange reserves.The inflation number was the highest annual rate since available data - July 1965 - according to the research firm Arif Habib Ltd, and is expected to rise in the upcoming months.[55] On April 4, the World Bank projected about 4 million Pakistani people falling below the lower middle-income ($3.6/day ) poverty line amid economic growth plummeting to just 0.4% against a target of 5pc.[66] In a September 30 article in Bloomberg, it was noted that "[f]oreign exchange reserves have strengthened from previously critically low levels, import and currency restrictions that hurt industrial activity have eased.[69] On October 1, it was reported that YoY headline inflation slowed to 6.9%, a 44-month low (since January 2021) as a result of "high base effect, declining global commodity and energy prices, and a stable exchange rate."[77] On June 25 a revised Budget featuring new taxes, a raised the Petroleum Development Levy (PDL), a lifting of all restrictions on imports and various expenditure cuts were presented to the National Assembly and accepted the next day.This following politically risky measures taken by the Sharif government including raising taxes, reversing subsidies in power and export sectors, increasing energy and fuel prices, agreeing to a market-based currency exchange rate, cutting spending and revising the 2023-24 Federal Budget.Micheal Kugelman writing "Islamabad waited until the very final hour to take the (politically risky) fiscal policy steps that the IMF had been hoping to see for months."[83] The IMF would state that the FY24 Federal Budget was “in line with the goals of supporting fiscal sustainability and mobilising revenue, which will enable greater social and development spending”.[97] Shortage of foreign exchange reserves and depreciation in Pakistani rupee created difficulties in importing crude oil, leading to a temporary closure of Pakistan's largest petroleum refinery–Cnergyico, in February 2023.[98][99] Delays in securing letters of credit resulted in ships and containers of pharmaceutical raw material, medicines and healthcare devices imported from other countries to be stuck at seaports for prolonged periods.
Inverted yield curve in 2019-2020 and 2022
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