Introduction.
National bankruptcy occurs when a country is unable to meet its debt obligations. This happens when a country cannot repay a loan or pay interest on its debt. Sovereign bankruptcy can have severe economic consequences, including devaluation of national currencies.
Pakistan’s Defense Minister Khawaja Asif speaking at a private college function in Sialkot said that you must have known that Pakistan is going to become bankrupt or defaulter, it has already been done and we are a bankrupt country. Living within He said that to become a stable country, it is necessary to stand on our own feet and the solution is within our country itself and the IMF does not have the solution to Pakistan’s problems.The Defense Minister of Pakistan added that the establishment, bureaucracy and politicians are all responsible for the current economic crisis because the law and constitution are not being followed in Pakistan. He said that most of his time was spent in opposition parties and he has seen the degradation of politics in the last 32 years.
Background on Pakistan’s economic situation
Pakistan is a country in South Asia with a population of more than 240 million people. It is facing economic challenges due to various reasons. One of the biggest problems is a high level of debt, which means the country must be pay a lot of money to other countries and international organizations. Another problem is that Pakistan spends more money on imports than it earns from exports, leading to a current account deficit. Inflation, which means the cost of goods and services going up, is also a big issue. Corruption, weak governance, and security concerns are other challenges that have affected the economy. All of these factors have led to a difficult economic situation for Pakistan.
Pakistan’s economic challenges are complex and require urgent attention. The country’s high external debt, current account deficit, and inflation are significant problems that demand serious policy reform. Moreover, tackling the issues of corruption, weak governance, and security concerns is crucial for the country’s sustainable economic growth. It is essential that Pakistan takes necessary steps to address these challenges to avoid default and build a stronger and more prosperous future for its people.”
Causes of Pakistan’s Default
Pakistan’s default is caused by a combination of economic and political factors. The main economic factors are high levels of external debt, current account deficit, and inflation. This means that Pakistan owes a lot of money to other countries and organizations, and it spends more on imports than it earns from exports, which puts a strain on the economy. Inflation means that the cost of goods and services is going up, making it harder for people to afford the things they need. Political factors, such as corruption, weak governance, and security concerns, are also significant contributors to the default. Corruption and lack of transparency can lead to mismanagement of public funds and wasteful spending. Weak governance and policy implementation can make it harder to address economic challenges. Security concerns can deter foreign investment and create instability that can harm the economy. All of these factors combined have made Pakistan’s default.
Earth Quake in Turkey and Syria today
1.High external debt
High external debt is one of the major economic factors that have contributed to Pakistan’s default. External debt is the amount of money that a country owes to foreign creditors or international organizations, such as the World Bank or the International Monetary Fund (IMF) World bank.Pakistan’s external debt has been increasing steadily over the years, and currently, it stands at around $115 billion, which is a significant amount. The country has been borrowing heavily to finance its budget deficits and development projects, and this has resulted in a higher debt-to-GDP ratio, which means that the country’s debt is becoming more difficult to manage.High external debt creates a burden on a country’s finances, as it means that the country has to make regular payments to service the debt, including interest payments. These payments can be substantial and can limit the country’s ability to invest in other areas, such as education, healthcare, and infrastructure. Moreover, if a country is unable to make its debt payments, it can lead to default, which can have serious consequences for the economy and the people of the country.
2.Pakistan Total External Debt
In the fourth quarter of 2022, Pakistan’s external debt dropped from 126914 USD million in the third quarter to 126345 USD million.
source: tradingeconomics.com
3.Pakistan Current account deficit
One of the major reasons that has contributed to Pakistan’s financial problems is the current account deficit.It means that Pakistan is spending more on imports than it earns from exports, which can put pressure on foreign exchange reserves. This is a problem because it can lead to a country’s inability to pay its debts and can ultimately cause economic collapse. Pakistan needs to take steps to address its current account deficit by boosting its exports and reducing its imports, so it can become more self-sufficient and maintain a healthy balance of payments. By doing so, Pakistan can not only improve its economic situation but also promote its independence and sovereignty.
4.Inflation
Inflation is another economic factor that has contributed to Pakistan’s default. Inflation refers to the general increase in the price of goods and services over time, which leads to a decrease in the purchasing power of the currency.
In Pakistan, inflation has been rising rapidly in recent years, reaching a rate of over 9% in 2021. This has made it more expensive for people to buy the things they need, such as food, housing, and healthcare, and has put a strain on their budgets. The rise in prices has also made it harder for businesses to operate, as they have to pay more for their inputs, such as raw materials and labor.
Inflation can have a severe impact on a country’s economy. It can lead to a decrease in consumer confidence, which can reduce spending and investment. It can also cause social unrest, as people become frustrated and angry at the high cost of living. Moreover, it can make it more challenging for a country to attract foreign investment, as investors are less likely to invest in a country with high inflation.
Addressing inflation is crucial for Pakistan’s economic recovery. The country needs to take steps to control inflation, such as by implementing monetary policies that can help to stabilize prices and strengthen the currency. It is also essential to address other underlying economic factors that contribute to inflation, such as high levels of debt and current account deficit, to ensure a sustainable economic future for the country.
Food crises in Pakistan
A video went viral on Twitter on Monday showing men on motorcycles chasing a wheat truck and besieging the vehicles in an attempt to snatch the expensive cargo of wheat. This is not an isolated case. The recent stampede in Sindh, sparked after thousands rushed to the front lines to see wheat trucks, confirmed the magnitude of the food crisis Pakistan crisis: Several videos of people fighting for wheat sacks and people protesting food in the streets have surfaced on social media platforms. Miniature trucks loaded with wheat and flour are escorted by armed guards to avoid conflict with beneficiaries.
Food Crisis in Pakistan: Pakistan is currently facing one of the worst food crises in years. Various parts of the country are reportedly facing wheat shortages, according to local media. As of last week, wheat flour was in severe shortage in several regions including Khyber Pakhtunkhwa, Sindh and
Balochistan and the price is now as high as PKR 3,000 per bag (PKR 1 is equivalent to INR 0.36).This led to riots in the streets of Pakistan by low-income groups. People, mostly low-income groups, were forced to wait in long queues for hours for subsidized supplies of wheat flour, the Express reported. There is a severe shortage of wheat in the retail market. Prices of other groceries and essentials in the country have skyrocketed.
Pakistan had a dreadful start to the new year. The latest data from the State Bank of Pakistan (SBP) about declining foreign exchange struck the death knell for a nation struggling with economic problems. Pakistan has just enough money to cover imports for three weeks with its remaining funds of $4.3 billion, which is the smallest reserve it has had since February 2014.
Petrol price hits record high at PKR 272, diesel at PKR 280
Pakistan raised oil and gas prices by 113% to record highs in a bid to secure a major loan from the International Monetary Fund. Petrol prices raised by Rs 22.20 a liter to satisfy the IMF’s resumption of the $7 billion Enhanced Fund facility (EFF). According to a recent statement by the Oil and Gas Regulatory Authority (OGRA) of Pakistan, gas prices have been raised from 16% to 113% across various sectors including household consumers.
After the hike, petrol is priced at PKR 272 per litre, while High Speed Diesel (HSD) is available at PKR 280 per liter in the financially strapped country. On the other hand, kerosene and gas oil are sold at PKR 202.73 per liter and PKR 196.68 per liter, respectively. The hike in gasoline and natural gas prices went into effect on February 16.
Record high Gas prices in Pakistan
After the government’s negotiations with the International Monetary Fund, the Economic Coordination Committee (ECC) on Monday approved a rise in gas rates for residential, commercial, and exporter consumers of more than 100%. (IMF).
According to the slabs, the price per metric million British thermal units (MMBtu) has increased for home consumers by Rs50 to Rs1810 and for commercial consumers by Rs1283 to Rs1650.The cost per MMbtu for consumers purchasing in bulk, however, has climbed from Rs780 to Rs1600, and the cost per MMbtu for K-Electric and SNPC power plants has increased from Rs857 to Rs1050.While the cement industry would pay Rs1500 per MMBtu instead of Rs1277, fertilizer prices have increased by Rs1275 per MMBtu.CNG will be available for Rs1805 per MMBtu, and exporters would be taxed Rs1100 per MMBtu. In addition, consumers in the protected group will pay fixed fees of Rs. 50 while consumers in the unprotected category would pay Rs. 500.
increase in the number of robberies and robbery & killings across the country
There is a continuous increase in the number of robberies and robbery-resistance killings across the country, which the security agencies are completely unable to stop.According to the report, an incident of robbery took place in Jalalpur, a suburb of Mianwali, in which the robbers opened fire on resistance. One person was seriously injured in the firing. The injured person has been transferred to Tehsil Headquarters Hospital Kalabagh. The police reached the spot and started the investigation.
In Maridake, armed men opened fire on a young child and a twenty-eight-year-old man from Shahzad Town. The injured have been identified as Wasim and four-year-old Azan. The rescue workers have shifted the injured to KTHQ hospital from GT Road in Hadu.
In Daska, three armed suspects stopped 24-year-old Samson Masih son of Hamad, a resident of Biharipur, with the intention of committing a robbery, and when he did not stop, the robbers opened fire on him, and the bullet went through his head. He died on the spot. On receiving the information about the murder, District Police Officer Sialkot Syed Muhammad Zeeshan Raza reached the spot and Rescue 1122 personnel handed over the body to the police after necessary procedures.
Unknown motorcyclists opened fire on a rickshaw near the railway bridge in Jhelum. The rickshaw driver was killed in the firing. The deceased Wasim was coming home with his sisters and niece in the rickshaw. The body of the deceased was taken to the hospital for post-mortem. After the firing, the accused fled from the spot. The police team is busy collecting evidence. According to the police, the accused have been claimed to be arrested soon.
In Kasur, there was a case of a citizen being killed during a robbery near Mustafaabad police station, after which the relatives of Ehsan, who was killed by robbers, protested. Protests are ongoing for the police not registering a case under the provisions of robbery. Due to the protest, long queues of vehicles were formed, the citizens faced difficulties
40 pharmaceutical companies warn of halting production
ISLAMABAD: More than 30 pharmaceutical companies have said they cannot continue production, citing unavailability of raw materials and delays in price increases.
However, the Ministry of Health has assured that the government will ensure that there is no shortage of medicines in the country.
No fewer than 40 companies told the Pakistan Drug Regulatory Authority (Drap) on Monday that they would suspend production within a week due to insufficient supply of raw materials.
Furthermore, they claim that their case for raising prices under the “hardness scale” will not be decided by the courts.
One of the biggest Diabetic Drug Producers in the World Closes in Pakistan
Sources claim that repressive policies are to blame for the shutdown. The top management of Lilly believed that since multinational corporations (MNCs) cannot compromise on standards, the only choice was to leave the South Asian nation. They believe that the local government only considers the cost and has no interest in matters of safety, effectiveness, or quality.Under the supervision of the Supreme Court, the 2018 Drug Price Policy was developed with the support of all stakeholders, including the government and business community.
The purpose of the program was to guarantee that any necessary pricing adjustments would follow inflation. Yet, it was recognized that the amount of adjustment would be limited because businesses would be able to keep up with inflation.The Supreme Court ordered that a one-time provision be made to deal with the impacts of the value because the policy did not address the valuation issue.
The issue of containers stuck at Karachi ports could not be resolved
The issue of containers At Karachi Port and Port Qasim, more than 8,000 containers could not be discharged. due to non-availability of dollars, on which the traders and industrialists are protesting and they are of the opinion that fines are being imposed on the stranded containers. Their difficulties have increased manifold. Acting President Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said that this situation is very disturbing. It is embarrassing to listen to people’s stories. Years have passed as numerous containers waited at the port for approval; daily fines are being charged.
7,000 containers of pulses were stuck at the port, leaving only 15 days of stock in the country
Due to the shortage, the price of pulses is expected to increase by Rs 100 per kg across the country.7,000 containers of pulses got stuck at the port of Karachi due to banks’ non-opening of LCs due to rapidly falling foreign exchange reserves. Only 15 days stock of pulses remained in the country. Due to banks not opening LCs for containers stuck at the port, the import of pulses has stopped, leading to a major food crisis and the price of pulses is likely to increase by Rs 100 per kg.
Despite the announcement of relaxation in port charges by the Minister of Maritime Affairs, no notification has been issued yet. The quality of pulses is getting worse with each passing day. Despite the availability of food items, containers are stuck at the port.
Luxury cars and mobiles gone to hell, my life-saving injection is available in the black market for 60,000.
Fazlur Rahman Fazli, 70, from Karachi, has prostate cancer. After being diagnosed a few years ago, he underwent surgery, and after a year of treatment, doctors prescribed hormone injections for five years to prevent the cancer from spreading to other parts of his body.He says that every two months I had to get this injection, but then due to the economic crisis of the country, there was a shortage of injections.
This injection imported from Korea was available in Pakistan for 22000 rupees earlier but then the whole sale dealer, who imported this injection told them that due to lack of dollars the import cargo of this injection could not come out of the port because of its LC is not opening for import.I began to have pain after a month had gone without receiving the injection.The stock that was in the country started to be sold at high prices, which is why the LC was not opened.
June 2023: Another IMF program will be necessary to avoid economic difficulties
Economists have expressed fear that the policy rate will have to be increased by 200 to 300 or even 400 basis points during the IMF program.Risks in the IMF program could lead to interest rates in Pakistan reaching 3 to 4 percent, economists say, and Pakistan may need a new IMF program after June. For the agreement between Pakistan and the IMF, the Government of Pakistan will have to make many more difficult decisions. Independence in decisions of State Bank of Pakistan (SBP) is required in Pakistan.The State Bank must decide on the currency rate on its own. The market forces must be used to determine the exchange rate.Because of this, experts have expressed concern that throughout the IMF program, the policy rate may need to be raised by 200 to 300 or perhaps 400 basis points.By the end of the current fiscal year, Pakistan must have sufficient foreign exchange reserves to cover imports for at least two months, according to economists.
Political Factor
Political factors have also played a role in Pakistan’s default. Political instability, corruption, weak governance, and security concerns are some of the primary political factors that have contributed to the economic challenges in the country.Political instability and uncertainty can make it harder to attract foreign investment and create a favorable business environment.
If there is instability or frequent changes in the government, investors may be hesitant to commit long-term capital, which can lead to a lack of investment and economic stagnation.Corruption is another significant political factor that has contributed to Pakistan’s default. Corruption can lead to a mismanagement of public funds and resources and result in wasteful spending. When government officials and public servants are corrupt, they prioritize their interests over the public good, which can harm the economy in the long run.
Weak governance is also a significant factor that has contributed to Pakistan’s default. Weak governance can make it harder to implement policies effectively and respond to economic challenges. Without strong leadership and effective decision-making, the government can struggle to create a stable and prosperous economy.Finally, security concerns have also played a role in Pakistan’s default. Security threats can make it more challenging to attract foreign investment and can create instability that can harm the economy. Security threats can also divert government resources away from economic development and towards security measures, which can limit the government’s ability to address economic challenges.To address these political factors, Pakistan needs to take steps to improve governance, transparency, and accountability. This can involve implementing anti-corruption measures, promoting stability and security, and strengthening democratic institutions. By doing so, Pakistan can create a more favorable environment for investment and ensure long-term economic growth and prosperity.
Corruption and lack of transparency
Corruption and lack of transparency are major political factors that have contributed to Pakistan’s economic challenges. Corruption refers to the misuse of power for personal gain, while lack of transparency means that information is not readily available or accessible to the public.Corruption can harm the economy by reducing public trust in government institutions and the private sector. When public officials engage in corruption, they prioritize their interests over the public good, leading to wasteful spending, mismanagement of public funds, and a lack of investment in critical areas such as education and healthcare.
Corruption can also deter foreign investment and reduce the government’s ability to respond to economic challenges.Lack of transparency is also a significant issue in Pakistan. When information is not readily available or accessible to the public, it can be harder to hold government officials accountable for their actions. This can create an environment where corruption can thrive, as there is little oversight or accountability. Lack of transparency can also make it harder for businesses to operate, as they may not have access to the information they need to make informed decisions.To address corruption and lack of transparency, Pakistan needs to take steps to promote good governance and accountability. This can involve implementing anti-corruption measures, such as improving oversight and regulation, strengthening the rule of law, and promoting transparency in government and business practices. By doing so, Pakistan can create a more stable and predictable business environment that can attract investment and promote long-term economic growth.
Weak governance and policy implementation
Weak governance and poor policy implementation have been significant political factors that have contributed to Pakistan’s economic challenges. Weak governance refers to the inability of the government to provide effective leadership and decision-making. This can lead to a lack of clarity and coherence in policy-making, which can undermine investor confidence and economic growth.Poor policy implementation refers to the inability of the government to execute policies effectively. Even if good policies are developed, if they are not implemented correctly, they can fail to achieve their objectives. Poor policy implementation can lead to a lack of public trust in the government’s ability to create change and can harm the economy.To address weak governance and poor policy implementation, Pakistan needs to take steps to strengthen its institutional capacity and improve its governance structures. This can involve investing in human capital development, improving regulatory frameworks, and promoting transparency in decision-making.It is also crucial for Pakistan to improve its policy implementation capacity. This can involve strengthening the public service, building capacity in government agencies, and improving coordination between different government departments.By addressing these challenges, Pakistan can create a more stable and predictable business environment that can attract investment and promote long-term economic growth. Improving governance and policy implementation will also help to build public trust in government institutions and promote social and economic development in the country.
Security concerns & state terrorism
Security concerns are another political factor that has contributed to Pakistan’s economic challenges. Security concerns refer to the threat of violence and instability, which can make it harder for businesses and investors to operate in the country.Security concerns can arise from a variety of sources, including political instability, terrorism, and ethnic or religious tensions. When security concerns are high, businesses may be reluctant to invest in the country or expand their operations, which can lead to slower economic growth and job creation.
Security concerns can also lead to a diversion of government resources away from economic development and towards security measures. This can limit the government’s ability to address economic challenges, as resources that could be used to promote economic growth are instead used to maintain security.To address security concerns, Pakistan needs to take steps to promote stability and security in the country. This can involve improving law enforcement, enhancing border security, and working to prevent terrorism and other forms of violence. It is also essential for Pakistan to work towards resolving ethnic and religious tensions that can contribute to security concerns.By addressing security concerns, Pakistan can create a more stable and predictable business environment that can attract investment and promote long-term economic growth. Improving security will also help to build public trust in government institutions and promote social and economic development in the country.
5.Consequences of Default
Default is a serious event that can have significant consequences for a country and its economy. When a country defaults on its debt, it means that it is unable to pay back its creditors on time or in full. This can lead to a range of economic and financial challenges.One consequence of default is that it can lead to a loss of investor confidence. If investors believe that a country is unable to meet its financial obligations, they may be less likely to invest in the country or buy its bonds. This can lead to a reduction in the country’s access to credit and an increase in borrowing costs.
Default can also lead to a sharp devaluation of the country’s currency. This can make it more expensive to import goods, leading to higher prices for consumers. The devaluation of the currency can also lead to inflation, as the cost of imported goods and raw materials increases.Default can also harm a country’s credit rating. When a country defaults, credit rating agencies may downgrade the country’s credit rating, making it harder and more expensive for the country to borrow money in the future.In addition to these economic consequences, default can also have social and political implications.
Default can lead to increased poverty and unemployment, as businesses struggle to access credit and invest in the country. This can lead to social unrest and political instability, as citizens become increasingly frustrated with their economic situation.Overall, default is a serious event that can have significant consequences for a country and its citizens. To avoid default, countries need to develop sound economic policies, maintain good governance, and work to promote stability and growth.
Reduction in credit rating
A reduction in credit rating is a term used to describe a situation in which a credit rating agency like Modis downgrades the credit rating of a country or a company. Credit rating agencies are companies that assess the creditworthiness of borrowers, such as countries or companies, and assign them a rating based on their ability to repay their debts.
When a country or a company’s credit rating is downgraded, it means that the credit rating agency has assessed that borrower to be at a higher risk of defaulting on their debts. This can have several consequences for the borrower.
One consequence of a reduction in credit rating is that it can make it more difficult and more expensive for the borrower to borrow money in the future. This is because lenders may be less willing to lend to a borrower with a lower credit rating, and may require a higher interest rate to compensate for the increased risk.
A reduction in credit rating can also harm a borrower’s reputation and credibility. A lower credit rating can make it more difficult for a borrower to attract investment, as investors may be less confident in the borrower’s ability to repay their debts.
Finally, a reduction in credit rating can have a ripple effect on the borrower’s economy or business. This is because a lower credit rating can lead to a reduction in foreign investment, a rise in borrowing costs, and a decrease in economic growth.
Overall, a reduction in credit rating is a serious event that can have significant consequences for a borrower. To maintain a good credit rating, borrowers need to maintain sound financial policies, avoid taking on too much debt, and work to build a strong track record of repaying their debts on time.
Depreciation of currency
Depreciation of currency refers to a situation where the value of a country’s currency decreases relative to other currencies in the foreign exchange market. This means that it takes more units of the local currency to buy the same amount of foreign currency.For example, if a US dollar could buy 275 rupees yesterday, but today it can only buy 100 Pakistani rupees, it means that the Pakistani rupee has depreciated in value relative to the US dollar.Depreciation of currency can have both positive and negative effects on the economy. On the one hand, it can make a country’s exports more competitive, as foreign buyers can purchase goods and services from that country at a lower cost. This can help to boost the country’s economy and create more jobs.On the other hand, depreciation of currency can also make imports more expensive, which can lead to higher inflation as the cost of goods and services increase. This can be particularly problematic for countries that rely heavily on imports, as it can lead to a decrease in consumer purchasing power and a reduction in economic growth.
In addition, depreciation of currency can make it more expensive for a country to service its foreign debt. This is because the country must use more of its local currency to purchase the foreign currency needed to repay its debt, which can lead to a higher debt burden.Overall, depreciation of currency is a complex issue that can have both positive and negative effects on an economy. It is important for policymakers to carefully monitor the value of their country’s currency and work to maintain a stable and competitive exchange rate.