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Short Term Economic Trends Pakistan

External dependencies for sustaining the economy continue to wrack Pakistan's economic health in the short term even as there are no indications of structural adjustments being undertaken, thus debt dependency is expected to continue.

Pakistan has been dependent on Saudi Arabia, the UAE and China for assistance to tide over the external payments crisis from time to time prior to the assistance that has been now provided by the International Monetary Fund (IMF). It is evident that Pakistan was attempting to avoid going to the IMF given the stringent conditions that are applied by the body in extending facility that were not acceptable to Islamabad.

Pakistan’s economy contracted 0.5 per cent last year due to the pandemic, the International Monetary Fund said, but is expected to grow 3.9 per cent this year.

In October last year Saudi Arabia provided $4.2 billion in financial assistance to Pakistan to shore up its foreign reserves and help the South Asian country recover from the effects of the coronavirus pandemic.

The Saudi Fund for Development deposited $3bn into the State Bank of Pakistan [SBP] as part of the support package extended by the kingdom. It also financed oil derivatives' trade worth $1.2bn during the year.

However the return of the loans comes up as a major challenge for Pakistan.

Finance Minister Shaukat Tarin informed the Senate of the requirement to return $3 billion placed in SBP account as per the Dawn News.

"The Saudi government has told us that they can ask for their [entire] money back if Pakistan defaults at any point," Tarin said. He assured the house that Pakistan "will not default".

The interest loan was four percent that is to be paid every three months. Tarin said that the interest rate on the loan was four per cent which would have to be paid every three months.

"Interest rates are rising across the world. The interest rate for the Saudi loan being four per cent is not something bad," he said.

The International Monetary Fund (IMF) in a report on February 04 stated that, “Economic activity has rebounded strongly on the back of waning COVID-19 infections and expansionary fiscal and monetary policies. However, strong import growth—fueled by the macroeconomic policy mix, higher international commodity prices, and credit growth—have led to a marked deterioration of the external position. The current account deficit has widened, the rupee depreciated markedly, and inflation remains persistently high”.

Thus the risk factors continue to be substantial. More over indebtedness to Saudi Arabia and China considerably reduces the leverage that Pakistan has and while the government has much tomtommed the geo-economic focus of foreign policy it may be more in the nature of seeking assistance from the wealth who are incline to support Pakistan.

On the political front, rising inflation will be one of the core factors that is expected to anger public opinion and bring much ill will for the Khan government which is facing an onslaught from the opposition as well.

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