*ISLAMABAD - Pakistan’s next government, to be chosen in a July 25 election, faces growing fears of a balance of payments crisis with speculation it will have to seek its second IMF bailout in five years, analysts say.*
The central bank is running down its foreign reserves and devaluing the currency in a bid to bridge a yawning trade deficit, and the winners of the July 25 election will have “limited time” to act, Fitch ratings agency said on July 2.
Together, the economic challenges are “horrendous”, said Ashfaque Hasan Khan, an analyst and former financial advisor to the Pakistan government.
“The most important (challenge) will be how to protect Pakistan’s balance of payments, how to build Pakistan’s foreign exchange reserves and how to fix its fiscal position,” he told *AFP*.
Plagued for years by Islamist militancy, Pakistan — a rapidly growing country of some 207 million people — has been battling to get its shaky economy back on track and end a years-long chronic energy crisis that has crippled industry.
Confidence had grown slightly in recent years, with security improving and the IMF claiming in October last year that the country had emerged from crisis after completing its post-2013 bailout programme.
The previous government of former PM Nawaz Sharif attempted to ease the power shortages, enact structural reforms and improve the creaky infrastructure, which had hampered growth.
China has also made progress on an ambitious multi-billion dollar infrastructure project — the China-Pakistan Economic Corridor (CPEC) — linking its western province of Xinjiang to the Arabian Sea via Pakistan.
But growth has not been as fast as many hoped. The economy grew by 5.8% during 2017-18, its fastest since 2005 but still missing a government target by 0.2%.
Public debt now sits at roughly 70% of GDP.
And the deficit is widening. Pakistan, which has historically relied on imports, has increased its procurement of materials to help build CPEC projects while also suffering from higher oil prices.
Its meagre exports such as textiles, meanwhile, have been hit as cheaper Chinese-produced goods flood the markets. Foreign remittances have not been enough to plug the gap.
Amid stability fears the caretaker government pledged in June to stem the current account deficit with rapidly dwindling foreign reserves.
According to the State Bank of Pakistan, the country’s reserves plunged to $9.6 billion on June 22 from $16 billion on April 17.
“We have to finance this gap of the trade deficit of $25 billion by depleting our reserves. There is no other option,” caretaker Finance Minister Shamshad Akhtar, installed last month, told a press conference.
“This is a major worry which our government is facing.”