Business & Finance

Pakistan Economic crises: Forex falls and Inflation rises

Pakistan is experiencing one of its most severe economic crises. Many initiatives, both long-term and short-term, have been criticized by economists, who blame them for India’s current condition. A variety of reasons have been raised, ranging from overinvestment in the army to providing “freebies” and having a volatile political situation. Outsider further adds that Pakistan implemented several initiatives and policy choices that were in its “political influence and not in commercial value.

Forex falls and Inflation rises in Pakistan

Pakistani Prime Minister Shehbaz Sharif has cut the number of international embassies. The country has formed an austerity council and announced many steps. Pakistan now has recourse to a $700 million loan from China Development Bank. During Pakistan’s unprecedented economic crisis, Prime Minister Shehbaz Sharif asked the Ministry of Foreign Affairs to cut the number of abroad embassies and offices.

PM Sharif took various moves amid suspicions of a sweeping austerity push. According to Pakistani media sources, PM Sharif asked the Foreign Office to reduce the number of overseas missions, buildings, staff, and other activities by 15% to reduce costs.

 Pakistan Economic crises: Austerity Policies

According to Pakistani news, the cabinet’s political-technocratic representatives have grown more frustrated with the govt’s failure to implement the NAC’s suggestions. According to the press, the government is raising gas and electricity costs, among other things, yet it is not cutting back on wasteful spending.

 China’s Support to Pakistan

Pakistan’s finance minister, Ishaq Dar, announced on Wednesday that the China Development Bank’s (CDB) board of directors has approved a $700 million credit line for Pakistan. According to them, the formalities are complete. To complete the procedures, the Board of Directors of the China Development Bank approved a $700 million loan arrangement for Pakistan. “The State Bank of Pakistan is anticipating to collect this sum this week, which will strengthen its foreign exchange reserves,” he said on social networking sites.

According to the press, Pakistan’s foreign exchange reserves have fallen to around $3 billion, which is insufficient to support three weeks of controlled imports. The country is in the middle of virtual discussions with the International Monetary Fund for a financial rescue (IMF).

Pakistan Bureau of Statistics data:

According to the latest available Pakistan Bureau of Statistics data, the Sensitive Price Index (SPI), which is utilized to gauge short-term inflation, jumped to 38.42% year on year (YoY) in the preceding week. In the previous month, 34 items had price rises, five had price cuts, and 12 had steady pricing. The category was most impacted by rising costs, with a monthly income that ranged from Rs 29,518 to Rs 44,175 and an inflation effect of 39.55%.

Final Verdict:

Pakistani officials surprised the public last month by imposing new taxes to earn Rs 170 billion through mini-budget legislation. Every household is affected by high inflation. Pakistan, which is in the grip of a serious financial & economic crisis, has been forced to make painful decisions, such as raising the price of petrol and diesel to receive IMF financing. The finance minister proposed raising the GST from 17% to 18% and levying a 25% tax on high-end goods in a new draught. He has also advocated for an increase in the VAT on first- and business-class plane tickets. The federal taxation is 20% of the ticket or Rs 50,000, whichever is greater.

Read More: RBI increases Repo Rate to 6.5%: Check Loan rates and interest earning on FD

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