Pakistan’s economy is in danger of collapsing, with persistent power outages and an acute shortage of foreign currency leaving businesses struggling to operate as authorities try to revive a bailout from the International Monetary Fund to ease a worsening crisis.
Shipping containers full of imports are piling up at Pakistani ports, according to the country’s central bank, as buyers are unable to secure dollars to pay for them. Airline associations and foreign companies have warned that they are being prevented from repatriating dollars because of capital controls imposed to protect dwindling foreign reserves. Officials said factories such as textile manufacturers are closing or cutting hours to conserve energy and resources.
The difficulties were compounded by a power outage across the country on Monday that lasted more than 12 hours. Prime Minister Shahbaz Sharif on Tuesday expressed his “sincere regret for the inconvenience” and said an investigation would determine the cause.
“A lot of industries have already shut down, and if these industries don’t restart soon, some of the losses will be permanent,” said Sakib Sherani, founder of Macro Economic Insights in Islamabad.
Analysts warn that Pakistan’s economic situation is becoming unsustainable, and is at risk of following Sri Lanka, where a lack of foreign reserves led to severe commodity shortages and eventually led to a debt default in May. Islamabad’s foreign reserves have fallen to less than $5 billion, less than a full month’s worth of imports. Sharif’s government is still deadlocked with the International Monetary Fund over reviving a $7 billion aid package that stalled last year.
“Every day matters now. The way out is not clear,” said Abid Hassan, a former World Bank advisor. “Even if they get a billion [dollars] or two for rolling. . . Things are so bad that it would only be a Band-Aid at best.”
Ahsan Iqbal, Pakistan’s planning minister, told the Financial Times that Pakistan had cut its imports “significantly” in a bid to conserve foreign currency. That includes preventing banks from opening letters of credit for importers, analysts said, prompting the steel industry body this week to threaten to halt production.
On Monday, the central bank said it was easing import restrictions to facilitate the supply of essential items such as food and fuel. Pakistan is still reeling from last year’s devastating floods, which affected tens of millions of people and caused an estimated $30 billion in damages.
International lenders pledged more than $9 billion to help the country’s recovery at a donors’ conference in Geneva this month, but details of how and when that money will arrive are still being negotiated.
Sharif’s government said it was committed to reviving the International Monetary Fund’s agreement to unlock the next tranche of funds. But the two sides remain deadlocked over the International Monetary Fund’s demand that Pakistan accept economic reforms such as higher subsidized energy prices.
Pakistan argues that pushing through painful austerity measures as it recovers from floods is impractical. “If we only comply with the conditions of the IMF, as they want, there will be riots in the streets,” Iqbal said. “We need a tiered program . . . the economy and society cannot absorb the shock or cost of a pre-loaded program.”
The economic turmoil comes as Pakistan prepares for elections that must be held this year. Sharif’s main rival is Imran Khan, the former prime minister who was ousted last year but remains hugely popular. Both leaders blame the other for the economic predicament, and Khan tries to force early polls.
“We need a predictable force,” said Timur Khan Jhagra, leader of Khan’s Pakistan Tehreek-e-Insaf party, accusing Sharif’s government of mismanaging power supplies. “It dictates the quality of life.”
“You see, nothing works in Pakistan,” said Akram Khan, 25, who lost his job at a used car showroom in Islamabad during the outage. Since early winter, we have been short of gas in the house. And now we have seen the electricity cut off in all of our country.”