Is Pakistan bankrupt? [Pakisthan Economic Crisis: Explained]

Pakistan’s Economic Crisis: Explained

Pakistan Minister: Requesting Pakistani citizens to reduce their consumption of tea.
Minister Ahsan Iqbal says: I am appealing to our people to reduce drinking tea by one or two cups at a time, as the tea we are currently importing is being imported on loan.

Because even Pakistan like Sri Lanka is staring at BANKRUPT, And Pakistan is worried.

Major paper Crisis In Pak, Students May Not Get New Books In Next Session.
Islamabad: Pakistan paper association has warned that due to the paper crisis in the country, books will not be available to students in the new academic year starting August 2022.

• IMF asks Pak to freeze govt employees’ pay and sticks to fiscal consolidation.
• Pakistan hikes petrol cost by Rs 20, one liter to cost Rs 180.

Is this the END OF PAKISTAN’S ECONOMY!?

let’s understand now how Pakistan’s economy got itself into this situation.

• History
• Debt Problem
• China’s Role
• Economic Crisis

In the year after its Independence in 1947, Pakistan was growing faster than India.

• Pakistan was growing 2% faster than every South Asian economy.
• Pakistan witnessed high growth during this period:
  • Manufacturing grew by more than 8% per annum
  • Big Dams were Constructed
  • National Highways were constructed

Pakistan was a growing South Asian’s fastest growing economy. when did the fall begin? In 1958, there were many political changes in Pakistan. There were fundamental changes in their Consitution (Gen. Ayub Khan is responsible for the Changes).

• Gen. Ayub Khan: He was not a politician. He was Pakistan’s first native Commander in Cheif. But when a confit began between the Army and Politicians. He effected a change in the Government and become the President himself.

Pakistan Debt Problem

Pakistani leaders took loans in the early 1950s, which would eventually damage the Pakistani economy – DEBT! Till today, Pakistan has borrowed 22 times from IMF. And not just from IMF, Pakistan has borrowed from Asian Development Bank and also from the World Bank.

• Debt by itself is not bad, almost every country borrows from another country or a financial institution. But how this borrowed money is utilized determines the success or failure of the borrowing.
• If the money coming from debt is used for development, Debt can help the country move forward.

But Education, Skill development, and Infrastructure – Pakistan did not focus on all of these things. The focus was on the military.

If we analyze Pakistan Finance Budget – Pakistan spends the most on two things: The first is Debt Repayment, and the second is Defence or the Army. Pakistan hikes its spending on the Armed forces every year.

Pak. hikes defense budget by over 11%; allocates Rs 1523 bn (Source: Business-Standard)

War has no winners both sides lose a lot, Money is lost and soldiers lose their lives. Inspite of knowing this, Pak’s priorities didn’t change (Indo-Pakistani Wars, Balochistan Conflicts, Afghan Civil War(1996–2001), Kargil War (1999).

Because there was no development: there were few sources of income.

• Even now 42% of the Pakistani people can’t read or write – a 58% Literacy Rate.

In such a situation, why will foreign companies come there?
Why will they give people jobs?

Because of this, Pakistan is stuck in a serious debt trap. There is only one way to get out of this trap: To take on more debt.

China’s Role

When the whole world stops lending to a country. China comes as a saviour. But with some big conditions attached.

• The World Bank lends loans at 3% to 3.5%, while China lends at 6%.
• The project work is given to Chinese companies.
• Chinese people are employed in these projects.

The projects that China is developing in Pakistan employ Chinese as 50% or more of their workforce. In Gilgit-Baltistan China has cornered some areas that even locals can’t enter.

In some time, if the project succeeds China profits in this scenario. But even if the project fails China finds a way to profit from that too. Because Chinese companies have already earned their profits. Plus China also earns interest on the loans.

• There are at least 40 countries globally: That owe more than 10% of their GDP in loans to China.

CaseStudy: On Liberalization and Economic Crisis in Pakistan – by Md. Zubair Khan

Economic Crisis

When Pak’s minister requested people to drink less tea. many people laughed at that video.

• The reason? : Pakistan is the World’s Biggest Tea Importer. In one year Pak. imports $600 million worth of Tea. They spend precious foreign reserves to buy this tea.

In June, Pak reserves could only pay for 2 months’ imports (Source: Business Standard)

Extreme times call for extreme measures: Pak. issued orders

• Along with reducing tea consumption.
• Shops have been asked to shut early to save power.
• Companies have been asked to work from home on Fridays so that they save petrol.
• Government officials have been stopped from taking foreign trips.
• And in some cities, Streetlights will be shut on alternate days.

Explained:
Sri Lanka Crisis: Explained In Simple Points [Explained]