Pakistan on the Verge of Bankruptcy

28 June 2022 - Pakistan is staring down the barrel of bankruptcy, as the country’s economic situation worsens with no end in sight and a worsening cost of living crisis. 

Pakistan's foreign exchange reserves have been depleted to a critical level of under $9 billion, and the country has less than six weeks of import cover left. The Pakistani Rupee (PKR) has been on a free fall, crossing PKR 212 per USD on 21 June 2022, having been devalued by 34% in the last year. Consequently, the PKR has been labelled Asia’s worst-performing currency in 2022.

The Pakistani government has also recently increased the prices of fuel for the third time in the past month, in order to meet the International Monetary Fund’s “conditionalities” to secure a bailout package. As a result of the price increases, there have been reports of cab services, restaurants, and home delivery services closing down across the country. Petrol and diesel prices have risen by a record 56% and 83% respectively, burdening the common people. 

Increasing energy tariffs

The IMF has placed tough prior conditions on Pakistan, including increasing energy tariffs, terminating the government’s role in determining gas prices, and pushing the cabinet to impose a petroleum levy of PKR 50 per litre to collect a total of PKR 855 billion. It has also asked Pakistan to set up an anti-corruption task force to revamp the existing anti-corruption legislature.

The economic turmoil has played a role in deepening the political crisis in the country. Prime Minister Shehbaz Sharif blamed the former PM Imran Khan for instituting policies that have damaged Pakistan’s economy, while the latter spoke out against the current Sharif-led government for “succumbing to IMF pressure”, and called for nationwide protests against the increasing prices of fuel and food and the rising cost of living. 

Rising prices, a shortage of basic necessities, the closure of small enterprises, and an intensifying political crisis might cause Pakistan to default for the second time in its history. IMF assistance and emergency loans from friendly nations won't be enough to ease Pakistan's economic troubles permanently, say commentators. Take our Cost of Living survey and contribute to wage information on Pakistan.