Pakistan seeks cash bailout as its financial woes deepen after political turmoil and devastating floods
Pakistan is in talks to release of $1.1bn (£890m) of cash from the International Monetary Fund (IMF) to help ease its financial crisis.
Pakistan’s economic woes are a culmination of years of political turmoil, a financial crisis and last year’s catastrophic floods, with its reserves only able to cover three weeks – rather than the required three months.
Inflation is also thought to stand at around 24% to 26%, according to the country’s finance ministry, and the currency has been devalued against the dollar.
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The IMF delegation will be encouraging the Pakistani government to implement bold cost-cutting measures to help it bridge its financial gap, with mission chief Nathan Porter saying: “You don’t have any other option.”
In 2019, Pakistan secured a $6bn (£4.9bn) bailout from the IMF. It got another $1bn (£811m) last year to help overcome the devastating floods, but in November the IMF suspended payments, saying the government failed to make progress on its fiscal consolidation.
In response, Ishaq Dar, the country’s finance minister, told the IMF it had made some efforts to bring its crisis under control, including increasing taxes on petrol and natural gas, and increased prices for electricity.
If released, the cash from the IMF would go towards paying its external debt to the tune of $8bn, which has to be paid by the end of June.
Backlogs at ports, factories closed and electricity blackouts
The government has stopped issuing lines of credit, causing a backlog of container ships at the port of Karachi, while industry has been battered by the currency devaluation and imports block.
Domestic investment has dried up, with textile factories partially closing due to demand, and construction projects have been delayed due to lack of investment.
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Communities flee flooding
There has also been severe energy shortages, which has hindered remaining economic activity, while companies that generate and supply energy struggle with the high costs of fuel and turn off the electricity grid to save money.
Last week the country of 243 million people was plunged into darkness after a major breakdown of the national grid, which lasted several hours – the impact was felt on schools, hospitals, businesses and industry further hindering economic activity.
The country’s economy has been faltering for many years, with the floods in 2022 pushing it over the edge.
Pakistan’s floods impacted a third of the country and wiped out millions of hectares of crops. Almost 2,000 people were killed, and around 33 million people were displaced, with damage thought to cost around $40bn (£32.4bn).
Successive governments have been accused of making little effort to widening the tax net and increasing sources of revenue, while loans from allies such as China, Saudi Arabia and the United Arab Emirates kept its economy afloat.
Fuel taxes have been increased. File pic: Reuters
Some blame former PM Imran Khan
Former prime minister Imran Khan, and his government, have been accused of contributing to the immediate crisis. A year into his premiership, the fiscal deficit shot to a record high of $25.3bn (£20.5bn) and by the time he was ousted early last year, inflation was over 12%.
Mr Khan delayed approaching the IMF, despite economists recommending it, saying he wants to shun the practice of approaching foreign entities with a “begging bowl”.
However, his government was unable to bear the costs of a slew of welfare schemes it rolled out – though it helped his popularity.
His government’s reluctance to increase fuel costs, even in early 2022 when international crude rates had breached the $100 mark due to the war in Ukraine war, meant the state exchequer lost precious dollars.
Is Pakistan going the same way as Sri Lanka?
There is comparison of what is taking place in Pakistan with the collapse of the Sri Lankan economy last year.
But this is unlikely, as almost half of Sri Lanka’s external debt was owed to private creditors while for Pakistan, this is only about 8% of what it owes.
Pakistan’s large bilateral loan payments are to friendly countries like Saudi Arabia, the UAE, and China, which will be rolled over.
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With the present government starting to implement changes that would satisfy the IMF and a release of the $1.1bn tranche, this will pave the way for the release of the loan and other bilateral assistances.
But more importantly, Pakistan is a nuclear nation and a geostrategic country, and its allies, and the world, would prevent its economy from collapsing.
World
Stock markets slump for second day running after Trump announces tariffs – in worst day for indexes since COVID
Worldwide stock markets have plummeted for the second day running as the fallout from Donald Trump’s global tariffs continues.
While European and Asian markets suffered notable falls, American indexes were the worst hit, with Wall Street closing to a sea of red on Friday following Thursday’s rout – the worst day in US markets since the COVID-19 pandemic.
As it happened: Worst week’s trading in five years
All three of the US’s major indexes were down by more than 5% at market close; The Dow Jones Industrial Average plummeted 5.5%, the S&P 500 was 5.97% lower, and the Nasdaq Composite slipped 5.82%.
The Nasdaq was also 22% below its record-high set in December, which indicates a bear market.
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Ever since the US president announced the tariffs on Wednesday evening, analysts estimate that around $4.9trn (£3.8trn) has been wiped off the value of the global stock market.
Mr Trump has remained unapologetic as the markets struggle, posting in all-caps on Truth Social before the markets closed that “only the weak will fail”.
The UK’s leading stock market, the FTSE 100, also suffered its worst daily drop in more than five years, closing 4.95% down, a level not seen since March 2020.
And the Japanese exchange Nikkei 225 dropped by 2.75% at end of trading, down 20% from its recent peak in July last year.
US indexes had the worst day of trading since the COVID-19 pandemic. Pic: Reuters
Trump holds trade deal talks – reports
It comes as a source told CNN that Mr Trump has been in discussions with Vietnamese, Indian and Israeli representatives to negotiate bespoke trade deals that could alleviate proposed tariffs on those countries before a deadline next week.
The source told the US broadcaster the talks were being held in advance of the reciprocal levies going into effect next week.
Vietnam faced one of the highest reciprocal tariffs announced by the US president this week, with 46% rates on imports. Israeli imports face a 17% rate, and Indian goods will be subject to 26% tariffs.
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Do Trump’s tariffs add up?
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China – hit with 34% tariffs on imported goods – has also announced it will issue its own levy of the same rate on US imports.
Mr Trump said China “played it wrong” and “panicked – the one thing they cannot afford to do” in another all-caps Truth Social post earlier on Friday.
Later, on Air Force One, the US president told reporters that “the beauty” of the tariffs is that they allow for negotiations, referencing talks with Chinese company ByteDance on the sale of social media app TikTok.
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Tariffs: Xi hits back at Trump
He said: “We have a situation with TikTok where China will probably say, ‘We’ll approve a deal, but will you do something on the tariffs?’
“The tariffs give us great power to negotiate. They always have.”
World
Financial markets were always going to respond to Trump tariffs but they’re also battling with another problem
South Korea’s constitutional court has confirmed the dismissal of President Yoon Suk Yeol, who was impeached in December after declaring martial law.
His decision to send troops onto the streets led to the country’s worst political crisis in decades.
The court ruled to uphold the impeachment saying the conservative leader “violated his duty as commander-in-chief by mobilising troops” when he declared martial law.
The president was also said to have taken actions “beyond the powers provided in the constitution”.
Demonstrators stayed overnight near the constitutional court. Pic: AP
Supporters and opponents of the president gathered in their thousands in central Seoul as they awaited the ruling.
The 64-year-old shocked MPs, the public and international allies in early December when he declared martial law, meaning all existing laws regarding civilians were suspended in place of military law.
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The court was under heavy police security guard ahead of the announcement. Pic: AP
After suddenly declaring martial law, Mr Yoon sent hundreds of soldiers and police officers to the National Assembly.
He has argued that he sought to maintain order, but some senior military and police officers sent there have told hearings and investigators that Mr Yoon ordered them to drag out politicians to prevent an assembly vote on his decree.
His presidential powers were suspended when the opposition-dominated assembly voted to impeach him on 14 December, accusing him of rebellion.
The unanimous verdict to uphold parliament’s impeachment and remove Mr Yoon from office required the support of at least six of the court’s eight justices.
South Korea must hold a national election within two months to find a new leader.
Lee Jae-myung, leader of the main liberal opposition Democratic Party, is the early favourite to become the country’s next president, according to surveys.
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