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Pakistan’s economic pain gives Imran Khan a political headache

It’s been a long time since Akram Khan, a father of seven in his 40s, has been able to serve his family with meat. “A year ago, I used to bring a full basket every morning,” said the fruit seller, pointing to his half-selling cart of guavas, bananas and a few apples in a busy market in Islamabad. . “The rising food prices have made it difficult. . . Now, people can’t buy as much as they used to.”

More than 220 million people in Pakistan have been spared the initial economic shock caused by the coronavirus pandemic, thanks in part to the government’s policy of shorter, more relaxed lockdowns.

But they are facing a new crisis: inflation has risen to its worst level in years, with an index that tracks daily necessities like fuel, food and soap last week. increased over 18% over the same period last year.

The rupee has also fallen to an all-time low, losing 15% of its value against the dollar in six months. Officials fear that a sharp increase in import bills will deplete foreign currency reserves and further destabilize the economy.

This poses a growing challenge to the Prime Minister Imran Khan. His Pakistan Tehreek-e-Insaf party seized power in 2018 vowing to end the country’s cycles of economic turmoil, where high debt and low foreign currency reserves forced institutions like the IMF to bail out support many times.

But Khan has found himself trapped in this same vicious rhythm, and rival parties have sought to capitalize on the recent price rally to weaken or oust him before he serves the remaining two years of his term.

Line chart of Price Sensitivity Indicator * (2015-16 = 100) shows Price has increased in Pakistan especially for poorer communities

“The political implications of [inflation] is immense. For the PTI government since its inception, the economy has been its weakest link,” said Bilal Gilani, managing director of Gallup Pakistan. “There have been uncertainties over the last three years, but the last three months have been challenging.”

Authorities said they were taking steps to manage the situation. The IMF and Pakistan last week agreed to resume the next $1 billion hike of a 6 billion dollar financial package suspended signed in 2019, awaiting final approval by the fund’s executive board.

The State Bank of Pakistan last month also raised its benchmark interest rate by 150 basis points to 8.75% in an attempt to quell inflation. The central bank said it has taken other steps such as liberalizing the exchange rate, which it believes will help in the long run.

However, some analysts, such as Gilani, believe that the central bank has continued to intervene in the currency markets.

Reza Baqir, central bank governor and former IMF official, told the Financial Times Pakistan is working to end the “boom and bust cycle” that has plagued its economy. “We cannot let history rob us of our future,” he said in an interview last month. “What we’re trying to do now is show a difference from the past.”

Authorities have blamed rising prices for the rise in global inflation. Critics, however, argue that Pakistan’s predicament is the result of the same domestic mismanagement that forced Khan, who once said he would rather die than “beggar” for the great powers. foreign countries – must agree to the 12th IMF bailout since the 1980s by Pakistan.

“Structural issues remain unresolved,” said Asad Sayeed at the Collective for Social Science Research, a consulting organization based in Karachi.

Line graph of Rupees per dollar shows During Imran Khan's time as prime minister, Pakistan's currency has lost 30% of its value

Mr. Sayeed added that PTI is “against all economic problems related to corruption” and said the party argues that: “Once we come to power and corruption is contained, the flow of rivers of milk and honey will flow out.” None of that happened.”

Pakistan is expected to grow more than 4% this year, according to ratings agency Fitch, but a hotter economy is also driving increased imports for items like fuel and new cars.

With Pakistan’s chronically weak export sector unable to combat the increase, the current account deficit for the quarter ended September widened to $3.4 billion, from $1.9 billion in the previous quarter. the previous fiscal year ended in July.

The rupee fell to a record low of more than Rs 170 against the dollar as the stalled IMF program upset investors. But in order for the foundation to continue to provide financial support, Khan had to agree to painful measures such as rising gas and electricity prices.

Analysts have warned that such unpopular steps risk deepening the political backlash by further squeezing low-income Pakistanis and small businesses. “Even motorcyclists complain [about] Fuel prices are up,” said Ayaz Amir, a former member of parliament of the opposition PML-N party. “The government is looking vulnerable.”

To ease the hardship, Khan launched a $700 million plan last month to deliver subsidized staples like flour and bean meal to millions of eligible households. The Prime Minister hailed what he said was the country’s biggest-ever effort and would provide much-needed relief, demonstrating his government’s goal of creating an Islamic welfare state. teacher.

“All of this is so that Pakistan can become the state it is. . . Khan said in a speech last month.

But critics question whether the government’s steps can be effective in alleviating short-term economic difficulties as well as addressing deeper challenges.

Azeema Cheema, a director at Verso Consulting in Islamabad, argues that Khan’s government is doing more to “control the public’s perception of inflation, but not really. [to] deal with inflation. This is going to be a very difficult winter.”

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