Pakistan in severe liquidity crunch despite revival of IMF programme

A representative image of rupee and US dollar banknotes. — AFP/File
  • Pakistan has yet to apply for additional economic assistance from the IMF.
  • Estimated losses from flooding reach $18 billion.
  • The poor performance of the agricultural sector will put pressure on the demand for commodity imports.

ISLAMABAD: Despite the resumption of the International Monetary Fund (IMF) program after a seven-month hiatus, Pakistan is still reeling from a severe shortage of dollar liquidity as cataclysmic floods have worsened macroeconomic fundamentals.

While several leaders and economists have suggested that Pakistan should ask the IMF for the provision of a Rapid Financing Instrument (RFI) or financing facility linked to natural disaster response, Islamabad has yet to do so. new demand on expectations of a lukewarm response from Washington. international lender.

The IMF program of less than $6.5 billion was restored at the end of August after being blocked in February 2022 under the previous PTI-led regime when it provided unfunded subsidies for fuel and electricity.

The Pakistani currency has been under pressure ever since; While economists were expecting the rupee-dollar parity to improve after the relaunch of the IMF program, the recent catastrophic floods have shaken the economy.

The exchange rate has come under immense pressure in recent days, so the the rupee plunged 9% against the US dollar“, senior official sources said in a conversation with The news here Friday.

“The situation has worsened because the demand for imports has increased considerably, but the country does not have enough dollars. “Without improving the injections of dollars, Pakistan’s Macroeconomic Vulnerabilities aren’t going anywhere,” the sources added.

The agricultural sector faces the “worst” blow

Now, following severe flooding, the first estimated losses have accumulated in the order of 18 billion dollars while the Pakistani agricultural sector is the hardest hit.

Agriculture growth could stay flat or turn negative against the envisaged target of 3.9% for the current fiscal year 2022-23.

The worse performance of the agricultural sector will put pressure on increased demand for commodity imports and if Pakistan fails to generate the desired levels of dollar inflows, it could create food shortages during the financial year. In progress.

It is estimated that Pakistan will have to import additional cotton worth $2 billion in the current financial year as it suffered severe damage from flash floods affecting parts of Sindh where production of cotton was completely destroyed.

Now, the government will have to drain the areas where wheat is sown, otherwise there is a potential threat of a drop in production of the order of three to five million tonnes.

Minor onion and tomato crops were also damaged in Khyber Pakhtunkhwa and Sindh, while import demand for pulses may also increase in the current fiscal year.

Another problem may emerge on the trade front, as the country’s exports are also dependent on imports for the raw material and intermediate goods accounts, as value added has been created for the export of finished goods.

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