Pakistan’s economy on the verge of collapse as inflation soars

Pakistan’s finance minister senator Mohammad Ishaq Dar

The Pakistani state could soon follow Sri Lanka into a crisis of bankruptcy and spiralling inflation. If it does, the consequences will be far worse as the major South Asian country is ten times bigger and a lot poorer than Sri Lanka.

The value of Pakistan’s currency is in free fall, losing at least 14 percent in just over a week. Inflation is soaring and the country has only three weeks of foreign currency reserves left to pay for imports, including food and fuel.

Some of the world’s poorest people are already paying the price for the crisis. The cost of basic goods is rocketing even as millions of rural labourers and small farmers are still trying to recover from last year’s flooding disaster.

Already there are long petrol queues in the main cities, and the price of gas cylinders that most people use to cook with is now out of reach to many. And, as the state struggles to buy power, electricity outages are now so regular that many businesses have shut up shop.

That in turn has sparked a sharp rise in unemployment. Last month, the country’s national electricity grid collapsed for several days. That meant there was only candlelight for the poor majority that cannot afford a petrol generator—or now can no longer fill one up.

Even those that in the past would have considered themselves middle class are affected. “The recent power outage paralysed our lives. It felt like we were living in the stone age,” Ms Waseem told DW news in Karachi.

Protests against rising prices are now spreading across the country, with many blaming government corruption for the calamity.

In Hyderabad, a city in the south of the country, protesters raged against unemployment and price rises saying they were “exploiting the masses”. They burnt an effigy of Pakistan’s finance minister.

In the north of the country, protests are planned for the capital, Islamabad. Here conservative Islamist party Jamaat-i-Islami is trying to position itself at the head of the movement.

All the main competing political parties have failed—and are widely hated by the poor. But they all seek to turn the crisis to their own advantage. So far, the protests are not on the scale of those that gripped Sri Lanka last summer. But, there too, demonstrations started small and then escalated rapidly. 

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Behind the misery stands imperialist rivalry between the West, represented chiefly by the International Monetary Fund (IMF), and China. Before offering any kind of bailout loan to Pakistan, the IMF wants first to impose its usual neoliberal prescription.

Already that has meant pushing the state to stop supporting the rupee on currency markets. It was the government’s decision to follow this instruction that began the collapse of the rupee.

But the Fund wants far more than this. It demands huge cuts to public spending and a rise in taxes—a programme guaranteed to make the crisis of the poor far worse. It and other Western institutions are already owed some £33 billion. The IMF wants to ensure the creditors get as much of their money back as possible.

For its part, China is refusing to accept any reduction in the £25 billion worth of Pakistani debt it holds. Nor will it lower the price of the electricity that it supplies.

Under massive pressure, the Pakistani state agreed to start paying down the Chinese debt in instalments. But this enraged the IMF which wanted to use the debt as a weapon against the Chinese state.

Neither side is prepared to offer a lifeline unless the other is snubbed. The governor of Pakistan’s central bank admitted last week that the country needed £2.4 billion immediately just to meet debt repayments.

If it defaults on these, Pakistan will be rendered a financial pariah state, and there’ll be no further loans from anyone for years to come. The governor also said he needs another £4 billion to meet its current account deficit, so it can pay the state’s bills. And, up to £8 billion is required to stabilise the rupee.

Now a crack IMF team is on the ground in Pakistan. They are working out how to squeeze the last life out of the poorest while keeping the state machine going.

But the most powerful voices in the country have not yet been heard. If Pakistan’s working class were to follow the example of Sri Lanka and rise up, a very different future could emerge.