Currency crisis top agenda for whoever wins Pakistan Election
ISLAMABAD: Whoever wins the upcoming election in Pakistan will have to urgently resolve a currency crisis that threatens to put the brakes on the fast-growing economy, with the most likely solution being another bailout from the International Monetary Fund (IMF).
Pakistan’s economy expanded at 5.8% in the last fiscal year, its quickest pace in 13 years, but the rupee has been devalued four times since December, cumulatively shedding 22%. Interest rate has been raised three times and now stands at 7.5%.
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A sharp increase in oil prices – Pakistan imports about 80% of oil needs – has contributed to a current account deficit that widened 43% to $18 billion in the fiscal year that ended June 30. The central bank’s defence of an overvalued rupee has led to foreign reserves plunging to just over $9 billion last week from $16.4 billion in May 2017.
“Nobody thinks there is another option but to go to the IMF,” said Ehsan Malik, chief executive of the Pakistan Business Council, a body representing about 60 major Pakistani businesses.
Pakistan is forecasting economic expansion to hit 6.2% in the financial year ending June 2019, but the IMF sees it stumbling to 4.7%.
The deterioration in macroeconomic fundamentals has dented the economic credentials of the staunchly pro-business party of jailed former premier Nawaz Sharif, providing ammunition to rival Imran Khan, a former cricketer whose populist pitch includes plans for an “Islamic welfare state”.
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The two parties are running neck and neck in opinion polls.
The economy, however, has not featured heavily in campaign rhetoric, with Khan focusing on an anti-corruption drive and Sharif’s Pakistani Muslim League-Nawaz (PML-N) party portraying the vote as a referendum on democracy amid claims of meddling by the powerful military.
Pakistan’s old ally, China, and its banks provided additional loans of several billion dollars in recent months that were used to defend the foreign currency reserves.
Turning to China for a rescue package is “one of the options”, said PTI leader Asad Umar. “The decision will have to be taken very quickly. There’s just no time left.”
Miftah Ismail, who was the PML-N finance minister from December until a caretaker government took over in late May, told Reuters he’d prefer to avoid turning to IMF as “people of Pakistan don’t want us to go…and we can possibly avoid it”.
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Instead, Ismail said the government could raise debt on the international market to get by, while hoping that a current revival in exports would accelerate, helped by the rupee’s 20% devaluation since December. APP/AFP