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High Inflation, Low Foreign Reserve: Pakistan’s Economy Is On The Verge Of Collapsing


Pakistan’s economy is on the verge of collapsing due to high inflation rates, shrinking foreign reserves and ever-increasing debt. The Pakistani Rupee has declined to 121 against USDMoody’s has estimated that it could sink below 130 which could further aggravate the present situation.

The central bank of Pakistan – State Bank of Pakistan (SBP) has devaluated the Rupiyaa three times in the past six months to overcome the crisis. It had expected an increase in the export of Pakistani goods which would thereby boost the economy. But the decision backfired all three times. The imports increased and exports further declined. Oil prices rose to $60-80 per barrel. The decision proved to be a nuisance and a gross miscalculation. It was even criticised by Pak’s Finance Minister Ishaq Dar.

The currencies of some other developing countries are also showing a downward trend against a stronger US Dollar. Argentina’s Peso has depreciated by about 25% this year, while Turkish Lira has also suffered a bruising year, falling more than 15%. Other emerging economies such as Brazil, India and South Africa are also having a hard time with their currencies. Nevertheless, Pakistan’s plight is much worse than these nations. Its foreign reserves are also in a state of diminution and stand at less than $16000 million dollars.

The above graph shows Pakistan’s declining foreign reserve.

Now, the question arises – who is going to give a helping hand to Pakistan? Will it be its closest ally China, or the International Monetary Fund (IMF)? So far, China hasn’t shown any inclination to help Pakistan. The amount that Pakistan needs is not a big deal for China but by advancing loans to the country, China will take on the role of the IMF. This could lead to a clash with the West.

It is more likely that Pakistan will receive aid from the IMF. However, the organisation has assessed Pakistan’s gross external financing needs at a record $27 billion for the next fiscal year. It has also predicted that by 2019, the country’s external debt would jump to $103.4 billion, which its economy may not be able to handle, putting the country at extreme risk.





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