What forced Pakistan to do double trade with India

Pakistan’s conflicts are similar to those of these economies, although its problems are less severe than those of Sri Lanka. It also has recourse to lines of credit that can help tide over the crisis.

Rising commodity prices, especially of crude oil, are widening Pakistan’s current account deficit, draining its foreign exchange reserves and devaluing its currency. Last week, the Pakistani rupee saw its sharpest weekly fall since 1998, when a regional poll predicted a victory for former prime minister Imran Khan, months after he stepped down.

The country’s central bank’s foreign exchange reserves have fallen by $7bn since February to just over $9bn, enough to cover almost a month and a half of imports. Inflation rose to 21.3 per cent in June, a nearly 13-year high.

Fitch Ratings has downgraded its outlook for the country from stable to negative following a “significant deterioration in Pakistan’s external liquidity position and financing position since early 2022”. Moody’s has downgraded its outlook for Pakistan, and raised concerns over the country’s potential. Complete its current International Monetary Fund (IMF) programme, which, it said, “remains highly uncertain”.

While Pakistan’s economy is weak, its problems are slightly less severe than those of tourism-dependent Sri Lanka. The country is under the IMF loan program since 2019. It expects $1.3bn of fresh funding from its $7bn facility to be approved next month, easing its worsening liquidity crunch. Apart from this, he is also in talks with Saudi Arabia and China for the fund.

In June, a consortium of state banks in China, a close military and economic ally of Pakistan, lent it $2.3 billion to help avoid a foreign payment default and keep the IMF program alive.

Pakistan’s debt vulnerability is of a different nature than that of Sri Lanka, which owes about 40% of its debt to commercial lenders. Pakistan has mostly borrowed from multilateral institutions, such as the IMF, and bilateral lenders, such as Chinese state banks.

Another difference is that Pakistan’s economic fragility may have completely different geopolitical repercussions than the consequences of the economic collapse in Sri Lanka. Greater global resources are likely to be deployed to stem the collapse of Pakistan’s economy, given the country’s threatening risks to security and stability in the region.

In the end, Pakistan is not in a political crisis the way Sri Lanka is, where President Gotabaya Rajapaksa had to flee the country to escape the fury of the people. Still, there are political risks lurking in Pakistan – with implications for the viability of the IMF programme, particularly the belt-tightening measures initiated by the Pakistan government. Pakistan Muslim League-Nawaz (PML-N) president Shahbaz Sharif was elected prime minister by parliament in April after the Khan-led Pakistan Tehreek-e-Insaf (PTI) government was toppled following a no-confidence motion in Pakistan. National Assembly.

In response to growing concerns that this month’s $1.2 billion loan disbursement from the IMF may not be enough to tackle the foreign exchange liquidity crisis, Pakistan’s central bank governor Murtaza Syed, who has 16 years of working experience at the IMF Yes, has said. told the Financial Times that external financing needs to add up to about $34bn over the next 12 months, which will be covered by an IMF program worth more than $35bn.

Therefore, funding is important. But the hardships imposed on the country’s more than 220 million population due to the crisis and the remedial steps being taken and the political repercussions of the necessary but yet to be taken, a question mark hangs over it. To comply with the terms of the $6 billion loan agreed with the IMF in 2019, Sharif’s government has withdrawn fuel and energy subsidies that have already sent prices high, high still, causing public anger. has increased.

There are concerns about a possible political backlash, as reflected in a rebound in Khan’s approval levels for the next elections, thus raising the question of whether the necessary policy action to keep the IMF program alive will be feasible or electoral considerations. But the sacrifice will be made. Steps are needed not only for access to bailouts and temporary relief, but also for medium to long-term economic stability and revival, and poverty reduction.

While Pakistan’s economy is on the verge, it has had to back down from its stand on trade with India. As Islamabad struggles to ease the shortage of essential commodities and cool prices, it has allowed imports from India.

Official data from the commerce ministry, as reported by Business Standard, shows that imports from India have picked up since the new government came to power in April, despite restrictive bilateral trade policies on both sides.

India’s exports to Pakistan more than doubled to $142 million in the two-month period of April and May. It was $70 million in the same period a year ago.

A major import is sugar. India exported sugar worth $86 million during the two months. Exports also include pharmaceutical products, mineral fuels, coffee, tea, fruits and vegetables, plastics, iron and steel and matches.

Earlier, India withdrew the Most Favored Nation (MFN) status to Pakistan in February 2019. New Delhi had increased the duty on all imports from Pakistan to 200 per cent in the wake of the Pulwama terror attack. Bilateral trade between the two neighbors fell from $2.6 billion in FY19 to $831 million, $329 million and $516 million in FY2015, FY21 and FY22, respectively. India’s imports from Pakistan were negligible.

After the special status of Jammu and Kashmir ended, the Imran Khan government had suspended all trade with India. However, Pakistan opened up for the import of drugs and pharmaceuticals from India in May 2020, soon after the outbreak of the coronavirus pandemic.

In March 2021, a committee headed by the then Finance Minister of Pakistan, desperate to reduce the high domestic prices, allowed the import of sugar and cotton from India. But the cabinet overturned the decision in less than 24 hours after political protests.

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