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Forbes India – Economy: Pakistan, hit by rising inflation, seeks IMF lifeline

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Muhammad Nazir operates his store in Sohawa, Pakistan on November 14, 2021. Soaring inflation is straining households and businesses in Pakistan, stepping up pressure on Prime Minister Imran Khan to find solutions. I’m not making any profit these days, Nazir said. (Salman Masood / The New York Times)

Muhammad Nazir called off his daughter’s marriage. He parks his motorbike at home and heads for his store. Many of his shelves are empty because he can’t afford to stock the same stock of candy, soda, and cookies he did before.

An increasing number of its customers cannot buy its snacks anyway. The wave of global inflation has dealt a severe blow to Pakistan, a country of 220 million people already struggling with erratic growth and heavy public debt.

As the cost of food and fuel absorbs more of the meager income, people are pressuring Prime Minister Imran Khan’s government to do something.

I’m not making any profit these days, said Nazir, 66, from his store in Sohawa, a town about 80 kilometers southeast of the Pakistani capital of Islamabad. However, I come here every day, I open the store and I wait for customers.

The surge in prices jeopardized President Joe Bidens’ agenda in the United States and hit buyers from Germany to Mexico to South Africa. But they have a particularly negative effect in Pakistan, a developing country already subject to political instability and heavily dependent on imports such as fuel. The effect was compounded by a strong weakening of the Pakistani currency, the rupee, giving it less purchasing power internationally.

While inflation is expected to ease as supply chain bottlenecks tighten, Pakistan believes it cannot wait. On Monday, the government announced it had reached a deal with the International Monetary Fund for the first billion dollars of what is expected to be a $ 6 billion bailout.

The economy is the biggest threat the government is actually facing right now, said Khurram Husain, an economic reporter in Karachi. This essentially erodes the very basis of their public support.

Government officials played down the recent spike in inflation, saying it is a global phenomenon. Khan also blamed the burden of foreign debt he inherited from the previous government.

The government spent the first year stabilizing the economy but as it was on the verge of stabilizing it, the country faced the biggest crisis in 100 years: the coronavirus epidemic, he said. said, adding without a doubt that inflation is a problem.

Officials also cite fuel price comparisons with neighboring countries, such as India, saying Pakistan is even better off. Pakistanis have seen standard gas prices soar 34% over the past six months, to around Rs 146 per liter.

Pakistan has rushed to contain inflation and get the money it needs to keep buying abroad. Pakistan’s central bank last week hiked interest rates sharply, a move that could help calm price hikes but could cripple economic growth.

The Khan government has reached out to Saudi Arabia for a lifeline. Saudi Crown Prince Mohammed bin Salman has pledged $ 4.2 billion in cash assistance. Members of his government are also seeking loans from China which they say are needed to complete crucial power sector projects that are part of the $ 62 billion China-Pakistan economic corridor.

The Pakistani economy has been in and out of crisis since Khan, a former cricket star, came to power in 2018. But other periods of inflation have been felt mostly by the wealthy, economists say. This bad turn affects everyone.

Inflation jumped 9.2% in October from the previous year, according to government data. Inflation in food prices is crushing Pakistan’s poorest people, who already normally spend more than half of their income on food. The cost of basic groceries rose 17% year-on-year this month, according to government data. Pakistan’s biggest food import is palm oil, the price of which has jumped.

The economy is not doing well, said Mian Nasser Hyatt Maggo, president of the Federation of Pakistan Chambers of Commerce and Industry, an industry group based in Karachi.

Unemployment has also risen sharply, especially among city university graduates. The number of people falling into poverty is increasing.

The problems added urgency to Pakistan’s desire to establish a $ 6 billion loan program with the IMF. Discussions lasted for weeks, stumbling over Pakistan’s insistence that the governor of the central bank, which sets interest rates, report to the Khans government, and the IMF’s insistence that the office remain self-sufficient. Pakistan was part of an IMF program in 2019, but the program was put on hold a year later when the IMF said Pakistan was not implementing its structural reform recommendations.

An IMF stamp of approval would make it easier for Pakistan to approach the World Bank and the Asian Development Bank as well as the capital markets where it could sell bonds.

The Khans government distributed money to 20 million of the poorest Pakistani families and subsidized the cost of grains, pulses and cooking oil. If Pakistan makes a deal with the IMF, it will have to tighten its purse strings.

It will harm Khan politically in places like Sohawa, where many people supported him in the last general election.

Imran Khan is a good person and is always liked by many, but his team is not performing well, said Saleem Shahzad, a plumber who recently transferred his 6-year-old son to a cheaper school.

He’s incompetent, he says.

Click here to see Forbes India’s full coverage of the Covid-19 situation and its impact on life, business and economy

New York Times Press Service 2019

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