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The Making of an Economic Crisis in Pakistan
In order to break away from the neo-liberal debt servitude, Pakistan needs a strong political will to make structural changes to its political economy. Policies centred on working people and their needs should be privileged over the International Monetary Fund’s one-size-fits-all (non)-solution that it continues to advocate in developing countries.
Despite the Pakistani state gagging the ordinary people with record high inflation, Pakistan is still struggling to secure the remaining tranches of the 39-month Extended Fund Arrangement (EFA) of $6 billion that it secured in 2019. The creditors are not satisfied. The International Monetary Fund (IMF) expressed concerns about its fiscal and monetary policies, as well as its progress on structural reforms. Pakistan’s economic struggles are well-documented, with a balance of payments crisis at the forefront. The country’s shortage of dollars, coupled with a lack of sufficient export capacity and high imports, has led to the current state of economic collapse.
Pakistan’s economic crisis has been long-standing and multifaceted. The country has had 13 IMF programmes since 1950. Its reliance on the IMF has led to a vicious cycle of debt, where the country borrows from the IMF to pay off its previous loans, resulting in a never-ending debt trap. Pakistan’s total public debt stood at `45.7 trillion ($275.7 billion) as of June 2021, according to the State Bank of Pakistan. The country’s debt-to-gross domestic product (GDP) ratio has also been increasing, reaching 87% in 2020, up from 72% in 2017. With the exception of one or two governments, nearly all democratic governments and military dictators have approached the IMF in their tenure. Pakistan’s economy is completely debt-fuelled and heavily reliant on aid and loans along with a reliance on energy and fuel imports for which it requires foreign currency reserves.
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