Pakistan’s economy is currently passing through one of its worst phases in history, as the cash-strapped country struggles to attain inflows from bilateral and multilateral institutions while the crucial International Monetary Fund (IMF) programme remains in the doldrums.
Economic experts and markets have expressed concern over the government’s inability – and inaction – to resume the IMF’s ninth review, as it remains indecisive over fulfilling the lender's pre-requisites, such as additional revenue commitments, an increase in PDL and GST on petroleum products, and a hike in electricity and gas tariff.
This has created an overall sense of negativity that is being reflected in both the stock and currency markets, which remain under pressure over uncertainty. Businesses are now making more noise than ever before, but screams are apparently falling on deaf ears.
Meanwhile, despite imposing stringent import curtailing measures, such as restrictions on Letters of Credit (LCs), the South Asian country has been unable to curb the outflow of US dollars, whereas inflation continues to tread well above the 20% level.
As per the latest data available, the foreign exchange reserves held by the State Bank of Pakistan (SBP) fell by a hefty $1.23 billion to a highly critical level of $4.34 billion. This is the lowest level of SBP’s reserves since February 2014.
Total liquid foreign reserves held by the country stood at $10.19 billion, while the net foreign reserves held by commercial banks stood at $5.85 billion.
On the other hand, the shortage of much-needed dollars is leading to a shortage of essentials, and has given birth to a illegal market of foreign currency.
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The country currently has stocks of around 30 days of diesel (HSD) and 18 days of petrol. Then there are plans for imports by refineries and OMCs – the L/Cs are opened for another 15-20 days. This would mean the country is covered by 4-5 weeks of petrol and 6-7 weeks of HSD.
The crisis of shortage of raw materials has further intensified in industries across the country due to non-availability of foreign exchange and many industries are fearful of closure if serious efforts are not made to resolve the issue of Letter of Credits (LCs) opening immediately.
Thousands of containers packed with essential food items, raw materials and medical equipment have been held up at Pakistan’s Karachi port as the country grapples with a desperate foreign exchange crisis.
It was also learnt that edible oil stocks for three weeks are left in the country as traders remained unsuccessful to secure LCs.
Meanwhile, there is an ongoing scarcity of life-saving drugs and equipment in hospitals as well.
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The auto sector too, is reeling from the effects of the dollar shortage, with automakers including Indus Motor Company, Pak Suzuki Motor Company announcing plant shutdowns.
At least 300 tractor parts manufacturing SMEs have been forced to shut their units amidst a total crash in tractors’ demand along with a severe liquidity crunch following the suspension of refunds by the Federal Board of Revenue to tractor assemblers.
Meanwhile, All Pakistan Textile Mills Association (APTMA), sought “direct intervention” of the Federal Minister for Finance and Revenue Ishaq Dar as banks are not opening Letters of Credit (LCs) for the import of cotton, an essential raw material for the textile sector.
Pakistan's economy largely depends on textile exports for foreign currency and employment.
APTMA earlier informed that the country’s textile exports have started declining and they will clock in at below $1 billion per month for the rest of the year.
However, Governor SBP Jameel Ahmad has assured the business community of resolving the issue of restrictions on dollar soon, as manufacturers projected dim prospects regarding industrial production if import of raw materials remains blocked.
Yet, on the face of it, the government machinery seems to be moving slower than usual. Time is running out, and we cannot act fast enough.
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