Pakistani voters went to the polls last Thursday, amid a deep economic crisis that the country is experiencing, the most notable features of which are an inflation rate of about 30%, nearly 40% of the population living below the poverty line, and the ratio of public debt to gross domestic product rising to 72%.
The next government is expected to deal with these challenges and work to solve them, including developing the current dilapidated infrastructure in many areas of the country, whether at the level of roads, means of communication, electricity and water services, and sewage drainage.
One of the challenges facing Pakistan is energy provision, which has weakened the country’s growth prospects and restricted efforts to diversify its export base away from low-value-added products, such as cotton and rice, and focus on higher-value commodities.
One of the major problems that Pakistan faced was what befell it in late 2022, as seasonal floods caused the displacement of about 8 million people and led to losses worth more than $30 billion, as the loss of cotton crops led to the destruction of the country’s textile industry, which is a major source of exports. In all likelihood, the growth rate will decline to be negative in 2023.
Pakistan, which imports a large amount of its food and fuel needs, constantly records a huge trade deficit.
Stifling crisis
In light of this, Shahbaz Rana, an economic analyst at The Express Tribune newspaper and a broadcaster at The Express News, says that the most important food commodities that Pakistan imports are edible oil and legumes, and that the annual bill for imported food ranges between 6 and 8 billion dollars.
He added in an interview with Al Jazeera Net that Pakistan is facing a stifling crisis due to the volume of foreign debt, which exceeds 128 billion dollars, and is accompanied by debt service that is exhausting the general budget.
Due to rising commodity prices – many of which are imported – foreign exchange reserves dwindled to less than one month of imports last May, leading to shortages of vital goods.
Last June, Islamabad narrowly avoided default after obtaining a loan worth $3 billion from the International Monetary Fund. However, the lending package from the Fund came with strict conditions and reforms that would directly affect the public’s conditions.
As part of the deal, the government agreed to impose new taxes on the struggling energy sector and agreed to cut utility subsidies, which led to sharp rises in electricity and petroleum prices, hitting poor families particularly hard.
Inflation – which reached about 30% in December – has been rising since the beginning of last year after the Central Bank of Pakistan agreed to liberalize the exchange rate of the local currency as part of the existing Monetary Fund program.
Once the exchange rate was liberalized, the value of the currency declined sharply in recent months, currently reaching 279 rupees per dollar.
The Pakistani rupee fell in 2023 by about 20% against the dollar, and it is expected that the rupee will continue to decline slightly, which will lead to an increase in Pakistan’s current account deficit, as goods coming from abroad will become more expensive, according to Rana.
In recent months, the official unemployment rate has risen to a record high of 8.5%, meaning between 8 and 9 million people are falling into poverty.
The pulse of the street
Regarding his living situation, Arif Kayani (53 years old), an accountant working in the private sector in Islamabad, says that he and his family members are facing a difficult life, especially during the past two years as the cost of electricity and gasoline continues to rise.
He added that he was considered to have a good income, but with the rise in the inflation rate, his money became half the real value and his salary was no longer sufficient to face life’s circumstances. What will the situation be like for those whose salaries are weak or who cannot find work through which they can feed their families?
He said that he participated in the recent elections in the hope that they would produce a new government team that would be able to solve the economic crises that Pakistan has been facing for years.
Taxi driver Shahzad Ali was no less pessimistic than Kayani, as he assured Al Jazeera Net that his work had become useless in light of the significant rise in the price of gasoline, and that his income was barely enough for him and his small family consisting of him, his wife, and 3 children.
He added that he did not participate in the recent elections, considering that they are useless and will not solve the problems facing the country, considering that the next government is often predetermined by decision-making circles and does not have a reform program.
Fundamental issues
Pakistan has long suffered from major issues, says economist Shakeel Ahmed Ramai, executive director of the Asian Civilization and Development Research Institute in Islamabad, noting a clear decline in the growth rate, and it is also one of the worst performing countries in tax collection.
Speaking to Al Jazeera Net, Ramai added that successive governments did not go so far as to establish strong tax legislation for fear of harming the commercial interests of major companies or those belonging to the controlling families in the country.
He explained that the failure of successive governments to enhance tax revenues and modernize state-owned companies has caused a continuing increase in the fiscal deficit and huge debts.
Ramay pointed out that considering that the new government will proceed with obtaining another loan from the International Monetary Fund, it will face difficulty in repayment unless new taxes are imposed on agriculture and real estate.
He explained in his speech that foreign investment is being hampered by security concerns and political instability in addition to bureaucracy, which deter foreign investors from pumping their money into the country, noting that Pakistan has many investment opportunities in various sectors if conditions improve and systems are reformed.
Political crisis
Ramai pointed out that one of the dilemmas facing the Pakistani economy that keeps it from recovery is a political crisis in light of widespread skepticism about the integrity of the elections held on February 8, and that “deliberate exclusion took place against the former and currently detained Prime Minister Imran Khan and his party, the Tehreek-e-Insaf, despite the popularity.” They received more than 65% of the vote.
If the political contenders – especially the Muslim League Party led by former Prime Minister Nawaz Sharif and the People’s Party led by Asif Ali Zardari – resort to forming a government coalition with some other small forces, the long-awaited economic reforms and privatization program in Pakistan will become more difficult, according to Ramay.
He concluded that it is expected that the new administration in this case will choose the old solutions that have been tested over the past three decades, as it will raise energy prices instead of carrying out difficult reforms, and thus the inflation rate will remain high.
It will also raise electricity and gas prices to address the debt problem rather than address leaks or theft of power lines, and it may continue to impose taxes on companies – which already suffer from high fees – instead of going after the rich.
