New Delhi, October 15: Pakistans economic crisis driven by severe cash crunch has led to a sharp reduction in government expenditure. According to data, about 10 ministries received no funds in the first quarter of the current financial year. Several other ministries including finance, commerce and petroleum received funds but did not use a penny.
Less than 5 per cent of the annual allocation has been received during this period, which can be gauged from the severity of the economic crisis, a report said.
Despite the worsening macro economic indicators, the country's policymakers have stubbornly shown an unwillingness to take pragmatic decisions aimed at fixing the economy.
"The problem for Pakistan is that it is only fighting to avert a default..instead of simultaneously putting in place reform measures aimed at fixing the economy on a long term basis, the game is restricted to firefighting," an analyst told India Narrative.
The country, which was already on the brink of a default, has been further jolted by massive floods.
According to World Bank estimates, Pakistan floods could lead to an economic loss of more than $40 billion. While aids have been pouring in, the country with its political uncertainties, challenges are mounting.
Though Pakistan's former Finance Minister Miftah Ismail managed to revive the International Monetary Fund's bailout package, Pakistan's macro economic indicators have worsened with the floods. Besides, IMF's strict conditions that have come as riders to the bailout package has reduced the Shehbaz Sharif government's fiscal and administrative space considerably.
"From frequent fuel price adjustments, tariff revisions, imposition of taxes and free-floating of currency to policy measures of the State Bank of Pakistan (SBP), almost all macro-economic actions are subject to IMF's approval," the News International said.
On account of debt payment, the country's foreign exchange reserves have been continuously depleting.
Foreign exchange reserves held by the State Bank of Pakistan dropped $303 million to touch $7.597 billion as on the week ending October 7. During the week ended September 30, the forex reserves were at $7.8 billion.
Last week, in another blow, ratings agency Moody's Investor Service cut Pakistan's sovereign credit rating by a notch to Caa1 from B3.
"The decision to downgrade the ratings to Caa1 is driven by increased government liquidity and external vulnerability risks and higher debt sustainability risks, in the aftermath of devastating floods that hit the country since June 2022. The floods have exacerbated Pakistan's liquidity and external credit weaknesses and vastly increase social spending needs, while government revenue is severely hit," it said in a statement.
However, Pakistan will be able to heave a sigh of relief now after China has agreed to refinance a loan of $2.24 billion.
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