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Is Pakistan’s economic collapse inevitable?

Updated: Jan 13

Will financial assistance from international donors get Pakistan out of the dire economic turmoil?


Pakistan's Prime Minister Mr. Shehbaz Sharif and the United Nations Secretary General Antonio Guterres during the International Conference on Climate Resilient Pakistan


The government of Pakistan came together with the United Nations to jointly organise the International Conference on Climate Resilient Pakistan on January 9, 2023. Due to lack of interest, this was then reduced to merely a donor gathering to help Pakistan finds its feet after historic floods and massive economic mismanagement. The aim was to raise awareness and bring the attention of the international community to the devastating consequences of the floods that left the country in shambles. The official objective was also to lay attention to the Resilient Recovery, Rehabilitation and Reconstruction Framework (4RF) which develops a multi sectoral strategy to work towards post disaster reconstruction and rehabilitation. Pakistan aimed to garner international support for the dire circumstances that the country finds itself in and attempts to mitigate the crisis through monetary support from the international community.


The focus of the conference in Geneva remained on the consequences that followed the floods. The floods of 2022 that swept away more than half of the country aggravated the already worsening economic situation of Pakistan and delayed the route to recovery even further. The disaster brought forth a massive humanitarian crisis with about eight million people displaced from their homes and forced about nine million people off the edge of poverty.


Why is Pakistan asking for international assistance?


The important question here remains as to why Pakistan is looking towards the international community for financial assistance to mitigate the climate crisis in the country. This is because the need for assistance is not just limited to the consequences brought on by the floods. Pakistan, at present, is not economically equipped to bring its citizens out of the aftermath of this disaster, to rehabilitate them or even relocate the displaced population.


When the natural disaster struck the country in 2022, Pakistan was already in the grips of a man-made economic disaster. There was a severe balance of payment crisis in the country that continues to this day, coupled with very high inflation rates of daily commodities along with a massive energy crisis which has brought the whole country on the brink of a nation-wide blackout.


The country at this point is also facing a severe dearth of foreign exchange reserves, limiting its capacity to import necessary goods for sustenance. The foreign exchange reserves with the State Bank of Pakistan depleted to $5.5 billion as of December 30 2022. It has been projected that these reserves are just adequate to import three weeks’ worth of resources for the country after which Pakistan would be unable to pay from its own foreign reserves for any imports. As per the data of the Central Bank of Pakistan, the forex reserves are at an eight-year low and at this point, the constant availability of necessary resources such as medicine, food and energy is very uncertain.


The saving grace, so to say, the IMF bailout package has also been delayed thus leaving the country hanging for external economic support. It was in November 2022 that the International Monetary Fund (IMF) refused to release the pending $1.18 billion as a part of the Extended Fund Facility (EFF) assistance to the government of Pakistan due to their non-compliance to the additional conditions put forward by the IMF.

International Assistance


As far as raising funds for flood relief is concerned, the international monetary institutions such as the Asian Development Bank, the World Bank Group, the Islamic Development Bank along with the European Union has developed a Post-Disaster Needs Assessment (PDNA) which estimates about $14.9 billion in flood relief and about $15.2 billion to cover the economic losses as brought on by the disaster.


As per the government of Pakistan, the result of the international conference in Geneva was very favourable as the donors from the international community have pledged over $9 billion in economic assistance to the country. While the Kingdom of Saudi Arabia reportedly made a pledge of $1 billion, China extended the support of $100 million, and France pledged about $345 million. Saudi Arabia, France and China remained the highest pledgers of financial assistance to Pakistan along with the institutional support garnered from the Islamic Development Bank ($4.2 billion), World Bank ($2 billion), Asian Infrastructure Development Bank ($1 billion) and the Asian Development Bank ($1.5 billion). This seems to have been a win for the country as the Prime Minister Shahbaz Sharif was looking to raise at least $9 billion in donation through international appeal. Even though the country has raised a considerable amount of funds from external sources, there needs to be some regulation on the home front as well for the situation to stabilise in the long term.


National Energy Efficiency and Conservation Plan


Looking to mitigate the crisis in the energy sector, the government of Pakistan aims to reduce national energy consumption through the implementation of the National Energy Efficiency and Conservation Plan. This development comes as the circular debt crisis in the energy sector rises to an unprecedented level, amounting to $2.4 trillion recently. As a part of this new energy conservation plan, the consumption of energy would be reduced by limiting the activities of malls, markets and wedding halls which would be closed by maximum 10 pm.


The aim is also said to be inculcating a change in the habit pattern of saving energy usage that would be beneficial in the long run. The cost of using oil would further be reduced by amplifying the usage of e-bikes that are rather expensive but reduce the overall dependence on oil resources. The government of Punjab and the All Pakistan Anjuman- i - Tajiran have rejected the plan of the central government on the grounds of uncertainty over its implementation.


It is very clear that Pakistan faces a lot of challenges as this year begins, both internally and internationally. The crash of the Pakistani economy however has not been a sudden event rather it was an impending disaster waiting to happen over the last few months. This has been a result of a faulty macroeconomic structure over a long period of time and the country would need to install a strong structural change to clear the waters in the long run.


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