Pakistan has a significant cash shortage despite a renewed IMF programme.
Even though the International Monetary Fund (IMF) programme has resumed after a seven-month hiatus, Pakistan continues to struggle with a significant dollar liquidity shortage as the catastrophic floods have exacerbated the macroeconomic fundamentals.
While many politicians and economists advocated for Pakistan to ask the IMF for a Rapid Financing Instrument (RFI) or Natural Calamity Response-related Funding Facility, Islamabad has not yet submitted a new request in anticipation of the Washington-based international lender’s unenthusiastic response.
After being put on hold in February 2022 by the previous PTI-led government’s provision of unfunded fuel and energy subsidies, the IMF project under $6.5 billion was restarted in late August.
Since then, there has been pressure on Pakistan’s currency; nevertheless, the recent devastating floods have hurt the economy, contrary to what experts had anticipated would happen with the restart of the IMF programme.
The rupee has dropped 9% against the US dollar in recent days due to intense pressure on the currency rate, top official sources told The News on Friday.”The issue has gotten worse as demand for imports has multiplied and there aren’t enough cash in the country. The sources continued, “Pakistan’s macroeconomic risks are not going away without better dollar injections.
The agricultural industry is hit the hardest.
The early estimates of damages have now increased to almost $18 billion as a result of the severe flooding, with Pakistan’s agriculture industry taking the biggest hit.
In contrast to the projected aim of 3.9% for the current fiscal year 2022–2023, the agriculture growth could remain zero or perhaps turn negative.
The worst agricultural performance will put pressure on rising import demand for commodities, and if Pakistan cannot attract the appropriate levels of dollar inflows, food shortages may occur in the current fiscal year.
According to estimates, Pakistan will need to import an additional $2 billion worth of cotton during the current fiscal year due to the significant damage caused by flash floods in Sindh that completely decimated the country’s cotton supply.
Now that wheat is being sown, the government must dewater those areas in order to prevent a potential loss of three to five million tonnes of production.
In Khyber Pakhtunkhwa and Sindh, the minor crops of onion and tomato were also harmed, and the requirement for pulse imports may rise in the upcoming fiscal year.As value addition was done for exporting finished products, the nation’s exports also depend on imports of raw materials and intermediary items, which presents another potential issue on the trade front.
