he severity of the country’s economic problems, overlooked by some amid political turbulence,is increasingly transparent amidtalk of a potential default on external payments.

On the one hand, foreign exchange reserves are dwindling and there are fears that the next loan tranche from the International Monitory Fund may be delayed. On the other, inflation has reached a new height and exports are touching a new low.

Pakistan entered a $6 billion IMF bailout programme in 2019 the ninth review of which is currently pending. The Fund hasbeen unwilling so far to accept Pakistan’s request for a relaxation its terms and conditions and accept the revised economic targets issued by Islamabad. Pakistan was forced to revise the targets downwards due to the havoc wreaked by the recent floods. The IMF has maintained that it needsto see a strong recovery plan before it will release the next tranche. Pakistan, however, is trying to negotiate for more flexibility. The release of next installment is seen by many as a lifeline necessary to resuscitate the country’s economy.

At the moment, according to the State Bank of Pakistan, foreign exchange reserves of the country stand at around $6.7 billion. The country was scheduled for $1 billion international bond repayment earlier this month. It made the payment promptly. However, worries linger over its ability to pay its long-term debt. The country’sexchange reserves have fallen rapidly from more than double the current figure over the past eight months.

In view of the dollar shortages, the Finance Ministry and the State Bank have imposed a number of restrictions on dollar outflows. Submission of letters of credit for Pakistani companies and traders have been stopped to shore up the inter-bank dollar rate. Nonetheless, the authorities are unable to manage the rate in the open market.This has resulted in a gap of 15-20 rupees between the inter-bank rate and the open market rate. Recently, there were rumors that the government had stopped certain kinds of payments to Google for its Google Play Store services. However, the government has denied this.

The country needs at least $32 billion in external financing in 2023. “I assure you that you don’t need to worry. We will get that,” says the finance minister.

Miftah Ismail, the former federal finance minister, warned in a recent editorial that the country was on the verge of ‘default.’ He pointed out that the default risk metrics were touchingdangerous levels. He insisted that the risk of bankruptcy has risen to an alarming level so that there was “no room for error,” He blamed the Tehreek-i-Insaf government for not abiding by the terms of its agreement with the IMF. This, he said, had dangerously raised the default risk. “We cannot take any risks but at the same time we need to make effective strategies for our creditors. National interest should be preferred over political differences. If the government does not take the necessary steps, it will not be in a position to criticise the PTI,” he wrote.

Finance Minister Ishaq Dar, however, has claimed that Pakistan will not default on any payments. The country, he said, had approached the UAE, Saudi Arabia and China in recent weeks to ask for bilateral bailout packages.A ministry official said, however, that such a package had not materialised so far. The ministry is also in contact with Emirati and Chinese banks for commercial loans.

Soon after taking charge, Dar had claimed for a slight reduction in inflation; cutinterest ratesand expressed hopes of US dollar trading at below 200 rupees. More recently he has complained about a severe balance of payment crisis, historic lows in the value of the rupee and the high inflation in the aftermath of devastating floods.

Theeconomic crisis isclosely linked to the political events. The PTI, ousted from power in April through a vote of no-confidence in the National Assembly, has won most of the recent by elections. It is demanding immediate general elections.The ruling coalition, however, is hedging its bets in the hope that the economy will improve a bit in the coming months.

Pakistan incurred $22.5 billion foreign loans in the financial year 2021-22 including $2.24 billion commercial loans in just June 2022 to prevent a dangerous depletion of foreign currency reserves. The government says the country will needs $32-$34 billion in external financing in the fiscal year 2023. “I assure you that you don’t need to worry. We will get that,” Dar told a media briefing.

“The economy has been devastated in the recent times.However, I think the world will not let Pakistan default,” says economist Dr Ashfaque Hasan Khan. He adds, “I had warned in April [after the ouster of the government] that the extreme nature of (political) polarisation will devastate the country’s economy.” He says Pakistan is in direneeds of political and economic sustainability and practical measures to end the uncertainty.

The economic crisis is linked to political stability. “There is a need for a roadmap for general elections to end this uncertainty. The caretaker government should focus on stablising the economy. The next elected government can take it from there,” says Khan.

The author is a staff reporter. He can be reached at vaqargillani@gmail.com