Inevitable IMF A Tsunami of inflation on the way
Early signs and indicators of Pakistans economic melt-down have started to appear.
(WebDesk/DunyaNews) – Pakistan has finally decided to formally approach International Monetary Fund after a dilly-dally of more than 50 days which cost Pakistan a steep devaluation of rupee, a crash of stock market and shocking fall of foreign reserves. Another IMF means another robust tide of inflation set to hit which in absence of strudy economic policies could pavethe way for economic melt-down. In a present dubious economic policy and an uncertainity about the clear and cut plan of action of Pakistan government, confidence in investment has already shaken.
Early signs and indicators of Pakistan’s economic melt-down have started to appear. Pakistan has been suffering from the catastrophic economic crisis which inflicts a mammoth loss of investment with falling of foreign reserves and a continuous depreciation of currency.
Also Read: IMF – A bitter pill for economy or a loss of political face
Fall of market, Rupee and foreign reserves in the tenure of PTI in comparison with PMLN
CAPITAL MARKET
Stock market is considered the representative of the sentiments of business and investment of any country which shaken when stocks battered as KSE plunged 1328 points in a day – which somehow gained a little momentum on Tuesday after the announcement made to approach to Bailout.
A day earlier, following a drop of 3.4 pc on October 08, 2018, KSE 100-share Index recorded a decrease of 1,328.06 points to settle at 37,898.29 which is a lowest of two years as political and economic uncertainty drove investor sentiment, leading to panic selling.
In the last two weeks, foreign investors sold shares worth $17.8 million and by Monday noon, another Rs110 billion were wiped out from the market. The KSE-100 settled at 37,898 points when the market closed with Rs272 billion wiped out. Last time market traded at this level was in December 2017.
In June 2013, when the Nawaz Sharif led PMLN government resumed the government offices, Pakistan stock exchange was trading at 19, 916 points which surged up to 32, 960 points which was a gain of 263 pc in the tenure of former government.
Also Read: Pakistan Stock Exchange records free fall during outgoing week
On 18th August 2018, when the Prime Minister of Pakistan Imran Khan has taken the oath as the chief executive of the country, 100 Index was trading at fair level of 42,440 points which in a span of 52 days of Pakistan Tehreek-e-Insaf government plummeted with a drop of 11 pc which constitutes a loss of 4,542 points.
Imran Khan led PTI government claims a mandate of change. It was considered that the change would boost the investor’s interest and confidence in the market however the reversing situation is shocking for the government, investors, market and business circles. However, in contrast rates of shares have also depleted and dropped by Rs. 448 billion which is being considered shattering for the incumbent government.
In June 2013, when the Nawaz Sharif led PMLN government resumed the government offices, Pakistan stock exchange was trading at 19, 916 points which surged up to 32, 960 points which was a gain of 263 pc in the tenure of former government.
Pakistan Muslim League – Nawaz led by former Premier Nawaz Sharif claimed it as their economic policies’ triumph.
During the tenure of PMLN government, PSX has reached to its highest with 52, 876 points on 24 May, 2017. Only in last 16 months, 100 Index has dropped by 15, 000 points. Stocks were trading on 45, 912 points when Ex-Prime Minister Nawaz Sharif was ousted by the Supreme Court of Pakistan whereas on the last day of PMLN government, market was settled at 42, 845 points. Capital Market since the ouster of the former Premier Nawaz Sharif has denigrated 39 pc whereas since the end of PMLN, it is plummeted by 18 pc.
PTI is being challenged on the basis of the facts and figures and the numbers by PMLN.
Also Read: PSX hits nine-month low after Shehbaz s arrest
RUPEE DEVALUATION
Not only stocks shed over shockingly but in first 50 days of PM Imran Khan led new government, rupees has also seen an abysmal downfall. Rupee is depreciated against dollar and reaches at the nerve-racking level of Rs. 138 on Tuesday after the announcement of approaching to IMF. It is being considered that the latest depreciation of Rupee and the sudden increase in the price of the USD could be a result of rupee devaluation by the State Bank of Pakistan (SBP) in order to secure a bailout package from the International Monetary Fund (IMF). The Fund has demanded the government devalue the rupee by at least 15 per cent.
Also Read: Dollar rate rises by Rs9.74 in interbank market
A day earlier, Dollar was trading at Rs 129. 30 in open market which at the time of PTI resuming offices, was trading at Rs. 122. Rupess devalued around Rs. 7. 30 in just first 52 days of PTI government.
FALL OF FOREIGN RESERVES
Pakistan’s dollar reserves fell by another $600 million last week to come to a critical level of $8.4 billion, that barely covers two months of imports. At the start of PTI government, Pakistan had foreign reserves of $16.72 billion which reduces to $14.89 billion with a loss of foreign reserves of $1.83 billion.
According to analysts, the delay and indecisive attitude of the government in seeking the non-realistic way outs led to this critical and crucial situation where in a dramatic turn, PTI government only after the crash of stock market has made an official announcement to reach out to the IMF for bailout package.
PAKISTAN SET TO APPROACH IMF FOR BAILOUT
After weeks of lingering due to PTI led government unrealistic and unworkable history of political statement in opposition and tall claims made by PTI leadership, PM Imran Khan led PTI government’s Finance Minister Asad Umar in a video statement a day earlier has finally announced to approach to the inevitable IMF for a bailout package aimed at avoiding default on international debt obligations and restoring confidence among the investors.
Also Read: Pakistan mulling to approach IMF for bailout package
The government took the decision after friendly countries did not bail it out despite Prime Minister Imran Khan himself went to Saudi Arabia with a begging bowl.
Analysts say the country needs a loan of around $12bn to turn the corner, but the news floats that Islamabad is betting on a loan of $6 billiom to $7 billion to get it through the crisis.
Former Finance Minister Shaukat Tareen said Government’s delay tactics, haphazardly wandering to the unbeneficial options like Saudia, China and other countries and shattering the confidence of the foreign investors with the confused and uncleared economic policy have given a full blown to the negative sentiments in market. Government should have considered the current situation of emerging markets which are already under stress.
PTI government took so long to approach to IMF as for further processing requires at least a month and many pre-package conditioned by IMF followed by the series of restriction and disciplines for the third instalment of IMF bailout package. Government should have not taken this much time to make the decision, more time could certainly give more damages to the market.
While speaking to the anchoperson Kamran Khan in Dunya News Program Dunya Kamran Khan Kay Sath, the prominent business figure Aqeel Kareem Dedhi expressed his views about the depleting economic situation of Pakistan as it was no secret to any one despite PTI government took so long to approach to IMF as for further processing requires at least a month and many pre-package conditioned by IMF followed by the series of restriction and disciplines for the third instalment of IMF bailout package. Government should have not taken this much time to make the decision, more time could certainly give more damages to the market. We welcomed that PM led cabinet had finally concluded on IMF bailout package which would encourage the investor in market as IMF disciplined Pakistan with conditions and restrictions that for a short term might affect the overall situation of inflation, but will help the economy in long run with maintaining the confidence of foreign investors.
IMF and Inflation Go Hands In Hands
No loan comes without a price. PTI remained critical about the bailout packages taken by the former governments. Finance Minister Asad Umar and PTI leadership previously had a view that with IMF bailouts, we were obligated to implement a series of unfavourable structural programmes, which left the economy in more terrible shape. Under the drastic fund’s restrictions, we already had seen reductions in subsidies, overall public spending on critical areas such as health and education, as well as a wage freeze and a ban on employment in the public sector for the sake of austerity and fiscal consolidation in former governments.
Also Read: IMF calls for more action in Pakistan
International Monetary Fund is considered as a lender of last resort, meaning when a country is on the verge of a sovereign default and is unable to obtain a loan elsewhere, it turns to the IMF.
Pakistan is now slated to run for its 13th bailout package since 1980s by IMF and also for the biggest ever package to deal with the plummeted markets, plunging rupee and tumbling economy on the verge of melt down.
With another installment of IMF, a cruel and hard-hitting tsunami of inflation and economic downfall is all set to hit with the interest rate soars up to 12 to 15 pc, devaluation of rupee by 18 to 20 pc against dollar and a shocking surge in power and gas tariff which would in turn affect the public and private sector, employment situations and price hike of commodities.
Also Read: IMF asks federal govt to hike power tariff
Pakistan first had taken IMF assistance in 1958 in the military government of Gen. Ayub Khan and since then had aviled 21 packages in different times and completed only 11 due to strict financial and economical consitions.
With another installment of IMF, a cruel and hard-hitting tsunami of inflation and economic downfall is all set to hit with the interest rate soars up to 12 to 15 pc, devaluation of rupee by 18 to 20 pc against dollar and a shocking surge in power and gas tariff which would in turn affect the public and private sector, employment situations and price hike of commodities.
As of 1988, Pakistan has entered into 12 different programmes with the IMF, which by contrast, is greater than all countries in the region combined. Nepal took two, Bangladesh for three times each, India has got its only one bail out in early 90s.
Islamabad has earned the reputation of a one-tranche nation – primarily Pakistan s track record of taking loans at critical times and then abandoning them prematurely, either because of a crisis of balance of payments or because further disbursements required tough policy actions.
It is imperative to mention that Pakistan have only successfully completed a total of 4 programmes over the last two decades.
Also Read: IMF says Pakistan has not approached fund for deal
