Islamabad: Pakistan, which has been going through an unprecedented financial crisis, is on the verge of an economic collapse and the coming days and weeks would be critical in deciding its destiny.
Pakistan’s Foreign Exchange reserves have been depleting fast and have tanked to the dangerous level of 3.08 million USD (as of January 27), which means that the country can go for imports only for 18.5 days.
The Pakistani Rupee today touched the historic low of Rs 276.58 against one USD.
In view of the dollar liquidity crisis, the country’s oil companies today warned that the industry is on the “brink of a collapse” while Cnergyico oil refinery shut down operations for over a week.
The price of Gold shot up to Pakistan Rs 208,500 per tola.
This all and more is happening at a time when a team of International Monetary Fund (IMF) is in Pakistan to ascertain how much, if any, loan should be extended to the country.
The financial crisis of the country has been worsening and deepening over the months, reaching the present stage of alarm.
The latest official data of the Economic Affairs Division (EAD) shows that the country could fetch loans of just $5.59 billion in the first half (July-Dec) period of the current financial year against the projected $22.6 billion.
During the same six-month period in the last financial year (2021-22), Pakistan had received loans and grants to the tune of $9.13 billion.
IMF has been acting tough in the negotiations, setting conditions that the Pakistan government undertake substantial and sustainable reforms, including tax and non-tax revenue measures, to bridge the huge fiscal gap to the tune of trillions of dollars.
Pakistan is expecting a ‘staff-level’ agreement after the conclusion of the talks, which will go on till February 9, under the $6.5 billion Extended Fund Facility (EFF), according to media reports.
“An IMF delegation is in Islamabad and giving a very tough time to the Finance Minister and his team,” Pakistan Prime Minister Shehbaz Sharif said today at a meeting in Peshawar.
The IMF delegation yesterday asked the Pakistan government to jack up the tax collection target of the Federal Board of Revenue (FBR) to align it with the projected nominal growth in the current fiscal year mainly with the help of a surge in the CPI-based inflationary pressures, according to Geo News.
The IMF and the Pakistani side will have to reconcile a figure on the fiscal gap. Once it’s determined, then it will pave the way for finalising tax and non-tax revenue measures through the upcoming mini-budget, it said.
The FBR officials informed the IMF team that they would be able to materialise their annual tax collection target of Rs7,470 billion keeping in view the recent devaluation of the rupee against the dollar and the possibility of removing restrictions on imports on the basis of the possibility of resuming the IMF programme, the media report said.
The IMF is asking the authorities to increase the FBR’s annual taxation collection target to align it with increased nominal growth as the CPI-based inflation touched a whopping figure of 27.6% while real GDP growth might hover around 2% so this nominal growth must translate into increased revenue collection target.
Meanwhile, Pakistan’s oil companies have warned that the industry is on the “brink of collapse” due to the acute devaluation of the Rupee.
The government, in order to meet the demand of the IMF, has removed the dollar cap, resulting in the rupee falling to a historic low of Rs276.58 in the interbank market.
The Oil Companies Advisory Council (OCAC), in a letter shot to the Oil and Gas Regulatory Authority (OGRA) and Energy Ministry, said that the “sudden depreciation” of the local rupee has caused losses worth billions of rupees to the industry as their letters of credit (LCs) are expected to be settled on the new rates, “whereas the related product has already been sold”.
As a result of the recent devaluation alone, the LC limits have overnight shrunk by 15-20%, the OCAC said.
“In order to ensure the import of adequate products into the country, it is important to Increase the trade finance/LC limits of the industry in line with the current oil prices, exchange rate and the volumes being handled by each company.”
“The industry is on the brink of collapse if immediate steps are not taken in respect of the above,” the associate added.
Meanwhile, Cnergyico oil refinery, in a statement, informed that it will shut down operations for over a week – from today till February 9 — and restart production from 10 February “in line with our Crude oil vessel arrival timeline”.
On the other side, Data released by All-Pakistan Sarafa Gems and Jewellers Association (APSGJA) showed that the price of gold (24 carats) increased by Rs1,300 per tola to settle at Rs208,500.
The price of the precious commodity has been shooting up amidst depleting foreign exchange reserves and weaking rupee as Pakistan meets its gold demand through imports.
In view of the deepening economic crisis, there are questions as to which way the country will go.
